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May 24, 2007, 09.44 AM IST | Source: CNBC-TV18

Sees FY08 gross sales at Rs 160-165 crore: Lotte India

KV Ramachandra, Managing Director of Lotte India Corporation, said the company is targeting Rs 160-165 crore in gross sales for FY08. The sugar boil confectionery industry is growing at 7% and in the next four months, the company will produce choco pie variants, he said.

K V Ramachandra,, MD, Lotte India Corporation

KV Ramachandra, Managing Director at Lotte India Corporation , said the company is targeting Rs 160-165 crore in gross sales for FY08. The sugar boil confectionery industry is growing at 7% and within the next four months the company would produce choco pie variants, he said.

 

Lotte India is looking at a strong double-digit growth in FY08. Ramachandra said that margins have been under pressure due to lower pricing.

 

The company plans to invest Rs 300 crore in two phases over the next three years, he said, adding that Rs 200 crore would be invested in the Chennai facility and Rs 100 crore in its existing facilities.

 

Excerpts from CNBC-TV18’s exclusive interview with KV Ramachandra:

 

Q: How fast is this whole space growing? Could you give us your expected revenues this year and which of your brands will contribute most to it?

 

A: We are looking at a gross sales of around Rs 160-165 crore this year. The sugar boil confectionery business is growing at anywhere between 7% and 8% per annum; so we are largely in line with the overall growth.

 

The industry is seeing some exciting times as consumers are getting more demanding. There is an increase in urbanisation, which in turn is raising demand for high value and better technology products. The price point is changing; what used to be Re 0.25-0.5 industry, is now slowly moving to a Re 1 to Rs 5 price point, which makes it more interesting as we can offer consumers that much more.

 

Q: You have also been launching new products like Cool Mint and Choco Pie. Do you see some of these products actually driving growth for you and can you get into double-digit growth because it seems quite small at 7-8%. In a market that is increasingly getting urbanised can one imagine much demand for your products?

 

A: We have been playing only in the sugar confectionery space and now we are moving to the healthy snacking segment with the introduction of Choco Pie. We brought Choco Pie into India in November last year and have already gone national. Choco Pie is becoming a large brand in its own right. The next four months will see four new Choco Pie variants from only one variant at present. By 2008, we should be manufacturing it here at our Chennai facility. We believe that Choco Pie is going to be a brand of the future as it is large and extremely robust in its offtake and demand.

 

We are also looking at a whole range of snacks, or a combination of biscuits and snacks for the higher end. We should hit the market in about three months. For FY08, we are looking at a very strong double-digit growth, as we move out from our current segment. Confectionery will still be our mother business but we are actually bringing in value-added products to address the increasing urbanisation that we have been talking about and that should give us a very strong double-digit growth.

 

Q: How soon do you expect that to happen in terms of the introduction of all these new products and what will that do for your margins because even they look on the lower side?

 

A: I would expect margins to improve. Margins have actually been a combination of two factors - first, we have been playing in a space, which is in the Re 0.25-0.50 product category. We were purely a single confectionery business company and the last six months have been very unkind in terms of commodity pricing. To be able to absorb the rise in commodity prices and still turn around is in itself very creditable.

 

We are now looking at products in a much higher margin category like Choco Pie or King Mint or Cool Mint or some of the new value adds that we will be bringing in about three months. We were able to draw on our parent company’s R&D and technology for these products, which offer higher margin. Many of these will seed into India in the first phase and would actually start manufacturing them here. We would actually be changing gears and space in the next three to four months. These products will allow us to get a much larger share of the modern trade in India, which is rapidly galloping.

 

Q: Who is competing with you at this point in the domestic market? For all this expansion that you are planning will you need to raise any cash or will the parent company be putting in any cash?

 

A: In terms of competition, there are about five to six organised players within the confectionery category. The larger players in this space are Nutrine Perfetti, Parle, Cadbury’s and Nestle. Within the space that we are going into, which is the Choco Pie and other snacking categories, there is no player who does those kinds of products in India. Technologically, maybe, we would be about a year-and-a-half ahead of the competition. Our idea is to move into products where we would possibly have a space of about 18 months before somebody else catches up with us.

 

The Board is convening next week and will be looking at a variety of options to raise cash for the expansion that we are looking at. There are multiple options that we are considering at this point in time. We will be looking at investing about Rs 300 crore in two phases over the next three years. The first infusion of Rs 200 crore will be for our Chennai facility and we plan to infuse Rs 100 crore in all our other existing facilities.

 

Q: What is Lotte shopping? I believe you have got a retail foray lined up as well.

 

A: Lotte is a USD 32 billion group worldwide and they have a large interest in Lotte Retail and a shopping department in Korea. They also have interest in the hospitality and hotel leisure sectors. They are into theme parks, beverages, nutritional product value ads, petrochemicals and construction. These are some of the possibilities that we are looking at for India in the next six months to a year.

 

Incidentally, Korea is one of the only countries in the world, where Wall-Mart and Carrefour had to take an exit. They lost out to Lotte Mart in Korea. We are very strong in the retail segments in that part of the world and are currently studying the landscape in India for possibilities or avenues. We would bring those entities into India in the next six months.

Lotte India stock price

On July 23, -, Lotte India Corporation closed at Rs 538.45, up Rs 2.45, or 0.46 percent. The 52-week high of the share was Rs and the 52-week low was Rs .


The company's trailing 12-month (TTM) EPS was at Rs 0.56 per share as per the quarter ended June 2009. The stock's price-to-earnings (P/E) ratio was 961.52. The latest book value of the company is Rs 472.74 per share. At current value, the price-to-book value of the company is 1.14.

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