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May 15, 2012, 08.58 AM IST
After not so impressive results and a fall in Q4 net profit by 75%, K Raghavendra Rao, CMD, Orchid Chemicals said that the company’s topline and bottomline performance has been affected mainly due to the repayment of Foreign Currency Convertible Bonds (FCCB).
In an interview with CNBC-TV18, Rao informed that due to the poor performance of the rupee, the foreign exchange difference between the dollar and rupee was quite high during repayment and resulted in a loss of Rs 83 crore. However, the company is positive about its sales and EBITDA margin growths, keeping the guidance at15-20% for FY13.
Orchid Chemicals posted a consolidated net profit of Rs 14.5 crore for the last quarter of FY12, down 75.3% as compared to Rs 58.7 crore (YoY).
Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.
Q: You seem to be falling short of the guidance that you held out for the full year. Can you take us through why both topline and bottomline performance is subdued this quarter?
A: Q4 performance was flattish compared to the other quarters in terms of topline. When we repaid the Foreign Currency Convertible Bonds (FCCB), the foreign exchange difference between the dollar and rupee is also responsible for this.
Rs 83 crore for the full year is the exceptional loss that we incurred due to the repayment of FCCBs in February. Also one time expenses incurred during plant closure was also there. So, Rs 84 crore of exceptional loss has been incurred in this year, whereas in the previous year it was a gain. That’s why the total profit is Rs 97.5 crore for the year.
Q: Can you give us two more data points? What is the interest cost that you have had to bear this time around and what kind of margins has Orchid posted?
A: The EBITDA margins are approximately 22.2% for the current year and also more or less same in the previous year as well. Interest costs have gone up significantly because compared to Rs 116.7 crore in the previous year, we had to incur about Rs 179 crore in the current year.
The interest cost has gone up by about Rs 63 crore. That is because the interest rates have gone up and we had to borrow to be able to grow the company. So, interest increase coupled with the foreign exchange loss on FCCB repayment are the two reasons for the net to be down.
Q: It's not been a good year for Orchid. You have just grown your sales by 7% this year and even EBITDA has gone up in high single digits. On this base, what do you think you can deliver realistically in FY13?
A: We had a series of issues in terms of plant closure, FCCB payment and things like that. It has not been a great year and also some of the approvals got little delayed compared to the original estimation.
So, because of these reasons and higher interest rates and charges, it has been subdued. But, we see a silver lining along the dark cloud, if I may say so, because from the present base we can pull all the stocks and grow the company by at least 15-20%.
Most of that operating leverage will come to bottomline because they are fully capitalized now in terms of the assets. Huge orders from clients are also there. We should be able to do about 15-20% growth.
Q: 15-20% on sales or on EBITDA or both?
A: Both actually, in fact marginally increase per share will be at EBITDA level because the fixed overheads will be spread over a larger volume of business.
Q: On your debt front, what is the plan because that's been bogging you for many quarters now? Now that you have redeemed your FCCBs, where does the net debt stand at and how much does Orchid plan to bring it down by?
A: The net debt is 1.5: 1. The shareholders funds are about Rs 1200 crore and net debt is about Rs 1800 crore. Out of this, long term is Rs 1100 crore and working capital is about Rs 700 crore.
We have a specific plan to replace significant part of the long term debt, at least half of it by cheaper mode of funding, either by foreign currency loan or equity as we go forward. We would like to bring that debt to equity ratio less than 1:1 within this financial year.
Q: Follow up to that 15-20% revenue guidance that you have, this quarter how much has Hospira contributed and what kind of growth do you expect to see from here?
A: About 23% is this quarter’s contribution from Hospira. I think they will be between 20 and 25% of our sales as we go forward because when they grow, the company grows. I am also expecting 15-20% growth in their off take. In FY13 also they should be between 23 and 25% of our business.
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