In an interview with CNBC-TV18's Udayan Mukherjee, Rajesh Gandhi, managing director of Vadilal Industries, spoke about the latest happenings in his company and the road ahead.
Below is a verbatim transcript of the interview. Also watch the video.
Q: How fast is this business growing—the ice-cream business between FY10 and FY11? What kind of growth rate are you expecting?
A: We are looking at around 20-25% growth in the current year
Q: Is the industry growing at that rate or are you going to increase your market share?
A: We are slightly growing better than what the industry is growing. The industry is growing at 15-20% and we are growing around 20-25%. It is slightly above the industry average.
Q: Which regions does most of your growth come from?
A: We are more present in Western, northern and Eastern sector and we see growth in all the three sectors coming up well. We have more growth in ice-cream than the processed food currently.
Q: What are you doing as a management to close to gap with two of your nearest competitors that is Mother Diary and Kwality Walls because Amul is quite a distance away from you in terms of share?
A: We are quite aggressive in terms of our marketing strategy. We are working on developing the brand by being more aggressive on value added product where branding is being done and consumers are more connected to value added products. So some of these things are helping us.
We are putting lot of investment in terms of plant and machinery, sales generating asset. Last year and current year put together we are investing around Rs 100 crore in upgrading the facility with better products, better infrastructure and better quality.
Apart from that sale generating assets we are putting a huge amount of money, which is giving us better growth and keeping us higher than the competitors and that is what we are aiming at.
Q: Do you see any opportunities in the overseas market like Middle East etc for Vadilal?
A: In the long run yes. As I mentioned earlier, we are upgrading the plant—so with that upgrading of the plant we are looking at closer markets like Middle East where we could be a niche player and already the brand is popular in some of those areas where Indians are residing. We have that advantage that the brand is popular in minds of those NRI markets.
Q: Your production capacity is going up quite significantly I think after your investments to close to 3.5 lakh litre by when do you think this expansion will be completed?
A: This 3.5 lakh litre will be completed by the end of February 2011. The machines have been ordered and some of them are on the way and the plant should be up by the time season which is starting from March.
Q: So for fiscal year 2010 you will get the benefit of this expanded capacity. How much can you translate that into revenues, once you can operate at this enhanced capacity?
A: Next year all our efforts, with all those product branding and the product which we have put in the pipeline and the facilities have been looked at, we are looking at topline growth of at least 30% next summer.
Q: So FY12 you should be able to cross Rs 300 crore in revenues?
A: More than that.
Q: Around Rs 350 crore?
A: No between Rs 325 to 350 crore.
Q: With what kind of bottomline because it’s not clear on how much of your sales flow through to your bottomline? Last year you had PAT of Rs 6 crore on sales of Rs 191 crore.
A: If we look at growth the company is posing for and now we are trying to do little bit more branding, more impulse varieties— it should go up by next year by at least 2% on the PAT side.
Q: So 2% of Rs 325-350 crore should flow into the PAT level?
A: 2% on PAT whatever, we are talking around 3% current PAT which his operating right now should go to 4-4.5%, around 5% PAT to sales that is what we are talking about, what we work and aim for the next year.
Q: A 5% PAT margin on sales of Rs 325-350 crore. You are planning to raise some capital through depository receipts could you just confirm that?
A: We are talking about issuing around 20 lakh shares that is little bit premature as on today because the market cap is not very favourable for the promoters and we are looking that once the marketcap goes to a significant size then it makes sense for the promoters to dilute and if you look at the size of the company around Rs 250-300 core and the market cap is Rs 100 crore.
That’s when we interact with some of the PE—we try to explain to them that this is not a right pricing where would like to dilute. So maybe for us the dilution could be from March-April onwards next year, where we see market valuations might improve with improved profitability and then we might dilute the equity.
Vadilal Ind stock price
On November 26, 2015, Vadilal Industries closed at Rs 658.50, up Rs 29.25, or 4.65 percent. The 52-week high of the share was Rs 883.50 and the 52-week low was Rs 229.95.
The company's trailing 12-month (TTM) EPS was at Rs 17.48 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 37.67. The latest book value of the company is Rs 75.30 per share. At current value, the price-to-book value of the company is 8.75.
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