Orchid Chemicals maintains guidance of 20-25% growth rate

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Orchid Chemicals maintains guidance of 20-25% growth rate

K Raghavendra Rao, CMD, Orchid Chemicals tells CNBC-TV18 that high interest costs and forex losses impacted the company’s earnings.

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Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Orchid Chemical See previous management interviews See what other Experts & Brokerages are saying about Orchid Chemical Orchid Chemical BSE | NSE 31/05/12 Are Mutual Funds betting on Orchid Chemical?

Orchid Chemicals and Pharmaceuticals reported a consolidated net loss of Rs 11 crore in the third quarter of FY12 as against profit of Rs 57 crore in a year ago quarter, led by foreign exchange loss.

K Raghavendra Rao, the chairman and managing director, Orchid Chemicals tells CNBC-TV18 that high interest costs and forex losses impacted the company's earnings.

Rao is confident they will perform much better going ahead. "From the current quarter onwards we should see robust performance and we should be able to catch up with what we lost," he says adding that they maintain their guidance of 20-25% revenue growth.

Below is an edited transcript. Watch the Accompanying video for more.

Q: Can you take us through the numbers? If you deduct the forex loss, at the net level it has not been a very good growth?

A: Yes, it has not been a very good growth but operationally we have done quite well for the quarter because the EBITDA is at a very good number of 27.5% on a standalone basis and we did more than Rs 129 crore of EBITDA on a sale of Rs 496 crore on a consolidated basis which is very good.

Two things have impact our earnings. One is the rising interest cost because the rates have gone up and the foreign exchange restatement which was done at Rs 53.1 to a dollar in December but as we speak most of it is going to be written back in this quarter because the rupee has strengthened so it's just a notional number. We are quite happy with our Rs 42 crore of operational profit but we could have done better.

Q: Even at the EBITDA level the Rs 129 crore you are speaking about compared to Rs 135 year ago, margins of 27.5% still compared to 28% plus a year ago. What's this pressure on account of and will it wear out in the fourth quarter? Will you see margins go north of 28%?

A: The future is going to be much better than the present or the past due to a couple of reasons. Earlier we had a hiccup at one of our plants, for a few weeks we didn't produce and we also had some approval delays. Now all of that is behind us. From the current quarter onwards we should see robust performance and we should be able to catch up with what we lost.

Q: There has been a significant quarter on quarter improvement in terms of the margins. What led to that? You pointed out interest costs have been weighing on the company and leverage continues to be an issue. What's the plan on deleveraging?

A: The improvement on a sequential basis is on account of the weakened rupee because on a full year basis the exchange loss or gain will get evened out because the loans have to dealt with at a point in time whereas the revenues come in over a period of time and also the launch that has happened in this quarter has also helped us which was not there in the previous quarter. That accounts for the increase on a sequential basis which we hope to maintain in the future as well.

As far as the interest rate management is concerned we are working on replacing some of the high cost loans with lower cost foreign currency loans. We have done that for the FCCB part of it already and we are going to do it for other parts of the loan as we go forward. The idea is to replace at least USD 100 million worth of rupee loans with foreign currency loans as we go forward so that the interest rates come down.

Q: Give us some guidance on what you expect the interest cost to be in the current quarter or in all of FY13? What is the extent of savings you will make as well will you standby your 25% revenue growth for the current year?

A: Yes, we have already gathered 20-25% growth. A couple of variables will always be out of the control of the company or the management so we will still be in the range of 20-25% growth for the current year maybe they will go more towards 20% than 25% perhaps.

In terms of the interest charges for the next year are concerned it won't be more than what is being done for the current year because we are replacing the FCCBs with external commercial borrowing which has an interest component. Still by managing the rupee loans being replaced by dollar loans as we go forward, I don't expect the interest charges to go up in the next year compared to the current year.

Q: For the EBITDA would you expect margins at about 24% this year and for the PAT, the EPS about Rs 30?

A: Well, 24% is what we had guided. We are actually doing better than that; between 26 and 27% EBITDA is what we have. We should come closer to 30% if not exactly 30% at the net profit level. We have to wait and see for this quarter.