Nov 12, 2012, 03.49 PM | Source: CNBC-TV18
Director and group CFO Sushil K Maroo said, margins in the steel division improved on the back of better product mix and its inventory rose by 4% on a quarterly basis.
Its consolidated net sales rose lower than expected 4.5 percent year-on-year to Rs 4,606 crore during the quarter. EBITDA margin went down by 270 basis points YoY to 35.6 percent.
Speaking to CNBC-TV18 about the financial performance of the company, director and group CFO Sushil K Maroo said, margins in the steel division improved on the back of better product mix and its inventory rose by 4% on a quarterly basis.
"Product mix played a major role in improving the margins. Besides that, we did cost cutting and improvement of efficiency. Prices more or less remained the same, they didn’t play much part," he elaborated.
Further, Maroo expects steel consumption to rise on better demand due to slash in CRR. "Because of two consecutive CRR cuts liquidity has improved with the corporates. Project activity is picking up. With the rainy season behind, we feel that the demand will pick up and inventory level will go down going forward," he added.
Below is the edited transcript of Maroo’s interview with CNBC-TV18.
Q: The steel division turned in pretty good margins; can you take us through its performance?
A: In steel, we not only maintained, but improved our margins to 35%. That was possible because of our product mix. Palette played a major role primarily because we are selling palettes and also consuming it. Besides that, we did cost cutting and improvement of efficiency.
Prices more or less remained the same, they didn’t play much part. Some steel sale has gone up though we did inventory build up compared to the June quarter. Primarily, product mix played a major role in improving the margins.
Q: Where is the inventory situation at the end of the second quarter?
A: From the first quarter, the June quarter, there is about 4% increase, it is not much of an increase. Normally that happens in the second quarter because the second quarter is rainy quarter and it is very difficult to sell steel because the demand and the construction activity is low. Most of the projects go slow in their activities, so the demand is less in the second quarter. From the first quarter, the inventory increase is only 4% that is not very high and there is nothing much to be concerned.
In the third and fourth quarter demand picks up. In the first half of the current year, interest rate was very high. There was liquidity concern in the market. Most of the projects did not have liquidity with them; they needed steel, but didn't have money, so they were not picking up steel.
Because of two consecutive CRR cuts in the past, liquidity has improved with the corporates. There is optimism building up in the economy. Also, project activity is picking up. With the rainy season behind, we feel that the demand will pick up and inventory level will go down going forward.
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