Expect revenue to be flat in FY12: Sona Koyo

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Expect revenue to be flat in FY12: Sona Koyo

In an interview to CNBC-TV18, Surinder Kapur, chairman and managing director of Sona Koyo Steering System says, in Q3, the pressure has been more on the top-line. He expects revenue to be flat this year.

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Sona Koyo has declared its third quarter results. The company's net profit was at Rs 14 crore versus Rs 20 crore on year-on-year (YoY) basis.

In an interview to CNBC-TV18, Surinder Kapur, chairman and managing director of Sona Koyo Steering System says, in Q3, the pressure has been more on the top-line. "That has resulted in pressure in the bottom-line," he adds.

He expects revenue to be flat this year. "Once the revenue starts kicking in, we should start improving our margins again. I am hoping the fourth quarter will really catch up on that basis," he adds.

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: Can you take us through the numbers? What pressured both the top-line and the bottom-line?

A: The pressure has really been more on the top-line. That has resulted in pressure in the bottom-line. I think we were anticipating atleast a 10-12% growth in this current year.

The automotive sector is now being pegged at zero. So, I think we are going to see a flat year. That has resulted in sales not really picking up to the extent we were anticipating it to pick up.

If you look at it on a year to date basis, we have grown by 6% from Rs 848 crore to Rs 989 crore and bottom-line has also improved slightly from Rs 32 crore to Rs 33 crore. So, on a consolidated basis, on a year to date, we are okay.

We will not reach the numbers we had thought in terms of a 12-15% increase in revenue. I think we will be in a flat revenue basis. At best I am looking at the quarter to give us some push because January has been a good month for us. We hope February and March will also be good.

Q: Why is it that you are seeing a pressure in terms of demand?

A: From the utility vehicles segment that we supply to, we are not seeing any short fall in demand. That is really where Mahindra's are. At our board meeting, we were talking about the fact that the utility vehicle sector has done well where we have been disappointed with some other car companies, which have not picked up the volumes they had planned they would.

There are a lot of new entrances who are trying to capture part of the market which is dominated by Maruti. Maruti had its own problems and now of course there is a shift to diesel cars more than petrol cars. So, if you look at the total passenger car industry, this year SIAM- automotive industry body- has actually projected a 1% or 0% growth.

We are actually part of the growth where talking about this 6% is really because of utility vehicle growth. So, the next two months even for the passenger car is going to be much better than it has been at least in the third quarter. So, I see improvements there. Right now, our targets are not to fall below last years levels, which I am certain we will be able to maintain.

Q: You also have some foreign exchange exposure, Rs 841 million, which starts repayment in March 2013-14. Has that impacted you in any way this quarter?

A: From materials point of view, three-four years ago, when we had that major hit of foreign exchange, we had settled with our customers and we do a past through. So we have really not been affected on that front.

As far as our ECB loans are concerned, we are now creating hedges so that we will not get impacted by the foreign exchange differentiation. I still don't know where it is going to settle, but I think we are taking a call right now that we need to hedge those where we don't get impacted in the future.

Q: Is there any forex element in this quarter's numbers? How have margins panned out? Do you expect them to improve because we see some tell tale evidence of commodity prices having softened?

A: As far as these results are concerned, under that new accounting standard 11, we have capitalised Rs 2.5 crore.

The third quarter margins came down from 16.29% to 14.29%. So, there is a 200 bps drop. That primarily is because of a lot of fixed cost that have been added for the growth that we were planning mainly in area of employee cost and some admin costs. Once the revenue starts kicking in, we should start improving our margins again. I am hoping the fourth quarter will really catch up on that basis.