Texmaco sees substantial growth in prime wagon segment

Below is a verbatim transcript of his interview with CNBC-TV18’s Latha Venkatesh and Reema Tendulkar. For the complete details watch the accompanying video.

Q: You have indicated that the total income for Q4 and the year does not include the free materials which comes up to about 226 – quite substantial and 467 for the entire year. Is that something which will be accounted in the coming year?

A: The government is changing its policy. The Railways is now thinking seriously that in the wagon industry - why should they continue to supply with the pre-supply material whereas in all the industries it is the job of the company management itself. That is what we have been arguing with the Railways and pursuing our case that our free supply material is no business of the Railways.

It should be left on the manufacturers to organize the supply chain management and give the maximum advantage to the buyer. Hopefully, in the next couple of year’s this trend will change and the entire supply with respect of the railway goods will be by the supplier themselves.

This trend is also true in respect to whatever we supply to the private sector manufacturers. We have a large segment of private sector buyers with us, from the cement industry, aluminum industry, the power industry where the entire material is being supplied by us. That is how the business is going on in the wagon segment.

Q: In the note that you have provided in your P/L, should we understand that your sales would have otherwise been higher or should we understand that in FY12 you are going to have a different treatment to the numbers?

A: The numbers do not play a significant role except when you organize your own supply chain management where you have the advantage of reducing your overheads, maintaining your purchasing in a manner whereby you can make a little bit more profit.

Operational profit is more or less what we have been performing over the years and it all depends upon the volume. We have been rather significantly looking to the volumes to rise in the rail segment which railways have announced for.

They are coming out with a new tender for 18,000 wagons maybe in this month or early next month which is where we are targeting. There is a private segment which is also now looking up where we are targeting that the majority of the business comes to our company which is Texmaco Rail.

Q: Because you have demerged your business so we do not have the kind of growth in percentage terms that the company can do. In FY12 on the base of Rs 940 crore in terms of net sales could you tell us the growth that the company will see for Texmaco Rail and even in terms of the EBITDA margins, from 18% where does it go next year?

A: Texmaco comprised of two major divisions - One is the real estate and the other is the heavy engineering and steel foundry division. The operations division which was the steel foundry and heavy engineering division has now been demerged and is called Texmaco Rail & Engineering Ltd. This company is the main operational company today.

If you see my EBITDA margin compared to Texmaco’s result of last year, I have grown by almost 30%. On a net profit basis we have grown by almost 44%. Although the turnover is more or less is flat, nevertheless because of a better product mix or cost control measures and supplying wagons to a segment which are niche segments, we have been able to maintain that our profits can keep on growing.

We have other segments too which are operating which are the steel foundry and also my hydro-mechanical equipment division. Last year the steel foundry division was a bit sluggish because in the first eight months the demand was not commensurate to the market requirements.

In fact the demand was sluggish for the reason that Railways were not in a position to release the orders for the first eight months, as a result this segment was sluggish but we have taken full advantage of this. Today, we are looking in a big way to the export markets.

Our first consignment is to the US market and the consignment has already moved out from the factory. This is a big break through we have achieved. Today, we are supplying to Australia, the Scandinavian countries, the US market and are looking at this in a big way. So foundry is an area where we are really targeting big growth in the coming years.

Q: Since we do not have the comparison with the previous year would it be right to say that in Texmaco Rail your gross sales are up from around Rs 312 crore to Rs 368 crore?

A: That is correct.

Q: Your profits are up from Rs 24 to 43.5 crore?

A: That is also correct.

Q: What kind of growth?

A: We have grown by 40-44%. The growth which we are now targeting for the next year is coming from the wagon segment which is the prime segment for the company. We are expecting substantial growth over there.

The rail segment is looking up and the railways are keen to increase the population of their fleet to make sure they are able to en-cash upon their surging business requirement in respect of the GDP growth and also in respect to the freight movement which is primary dependent in India on the rail segment.

Q: In volume terms how many wagons did you manufacture in FY11 and how many do you hope to manufacture in FY12?

A: We have manufactured 3,801 wagons in FY11 and we hope to at least maintain a growth of 20% for the next coming year.

Q: The total tenders which are coming is going to be 18,000 wagons. From that what are you expecting in FY12?

A: For the last four years, our share trend is between 25 to 30% and we expect to maintain the same.

Q: If you say 25-30% out of 18,000 that would be at least 5,000?

A: The upper limit of 5437, yes.

Q: You would be able to garner about 5,500 in terms of the tenders?

A: The past trend is that we have been supplying 25 to 30% to wagon segment. There is no reason why we will not be able to maintain that.

Q: You did an EBITDA of 19% in the last quarter. If that number is correct will you be able to improve on it?

A: We are running into two segments, one is the steel casting segment and other one is the wagon segment. Steel casting also supplies to our wagon segment that is why the net sales which you are considering for EBITDA purpose gives a distorted picture.

If you go on the gross sale basis we are getting an EBITDA of 16.4% which is where we have been making an improvement. Compared to last year this EBITDA has gone up by almost 3-4% and we expect to maintain this EBITDA rate and the volumes are certainly likely to grow in the coming year.

Suzlon to set up wind turbines in South Africa