Tube Investments expects to maintain EBITDA margins ahead

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Tube Investments expects to maintain EBITDA margins ahead

In an interview with CNBC-TV18, L Ramkumar, MD, Tube Investments says, there has been pressure on the margins due to the increase in steel and rubber prices. “Our endeavour is to maintain the same profit margins, earnings before interest, taxes, depreciation and amortization (EBITDA) margins,” he adds.

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

In an interview with CNBC-TV18, L Ramkumar, MD, Tube Investments says, the company has been growing rapidly over the years.

He further says, there has been pressure on the margins due to the increase in steel and rubber prices. "Our endeavour is to maintain the same profit margins, earnings before interest, taxes, depreciation and amortization (EBITDA) margins," he adds.

Below is a verbatim transcript of his interview with CNBC-TV18's Sonia Shenoy and Gautam Broker. Also watch the accompanying video.

Q: The cycles and e-scooters have seen a slight dip in their margins, about 4.8% versus 6.5%, so it's clearly commodity cost that's putting under pressure at this point.

A: That's true. We have also been growing rapidly over the years as you might have noticed. So, we have been growing on a larger base, which also means that we need to incur a little more cost to promote the product as well as incur on the retail side of the business. There has been pressure on the margins due to the increase in steel and rubber prices.

Q: What kind of projections can you give us going into FY12 in terms of operating profit margins? Do you see it slip significantly below this 11.5% to 10-11% level or you think you could hold on to that?

A: Going forward, we are very optimistic and positive, not very bullish. Our endeavour is to maintain the same profit margins, earnings before interest, taxes, depreciation and amortization (EBITDA) margins. But as you know there are a lot of pressures. You have been just talking about the interest rate hikes, the raw material price increases and then the ability to recover these prices from the customers is going to put a lot of pressure. But we are reasonably optimistic that with our increase in throughput and efficiency improvements, we should be in a position to atleast hold on closer to where we are today.

Q: On the flip side, the engineering division seems to have been doing well. We have seen a 38% growth on the top-line, also margins have improved to 11.5% versus 8.5%. What's been driving that margin improvement? Do you expect this to continue?

A: Basically, better utilisation of capacities. We almost reached 100% utilisation of capacity last year. So, the throughput increase has definitely given us the improvement in the bottom-line.

Q: What kind of revenue traction you can maintain going into FY12? What growth are you expecting to see?

A: As you know a large percentage of our business is dependent on auto industry. We believe the auto industry will continue to grow, may not be at the same rate at which it grew last year because of the various macroeconomic factors. 

The growth will continue. The growth will on top of the larger base, which happened last year. Most of our businesses have reached full capacities. So, we are going to expand capacities wherever required, in the engineering and the metal formed businesses. 

In terms of margins, as I said there is going to be a lot of pressure in terms of maintaining the same margins. But we are going to try hard by various means, cost cutting and product mix to maintain the same margins.

Q: There have been some loses from the Indian Motor Third Party Insurance Pool, that's quite significant, hit your bottom-line about Rs 61 crore, do you expect these loses to be as high as have been provided in the Q4 numbers?

A: See this is as you know based on the government policy by which a larger portion of the loses were allocated this year based on some calculations. This is purely based on policy. We believe that this would definitely hit all the insurance companies, is being represented. Going forward, we don't expect the loses to be as high.