US market a prime revenue driver, says Hanung Toys

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Toys and gift articles maker Hanung Toys and Textiles has announced its first quarter (April to June) results. The company has reported net sales of Rs 283.54 crore for the Q1 this year against Rs 246.48 crore for Q1 last year. Its Q1 net profit was at Rs 27.59 crore against Rs 27.29 crore for the Q1 last year.

Speaking to CNBC-TV18's Latha Venkatesh and Ekta Batra, Ashok Kumar Bansal, chairman and managing director of Hanung Toys and Textiles said that rising interest rates have affected the company's profit.

"US market is a key to our revenue growth; 75% of our revenue comes from exports," added Bansal.

Below is the edited transcript of the interview. Also watch the accompanying video. 

Q: What were the highlights of your first quarter performance and how come you were able to maintain your margins?

A: Last quarter we were able to achieve a turnover of Rs 283 crore against Rs 246 crore, so there is growth of 15%. We were able to maintain numbers only because of the high finance cost.

Last year, we marked a profit of Rs 27.29 and this year it is Rs 27.59 crore, so just 1% growth in profitability. Interest rates have been going up since last six-nine months and it that affected out bottom-line a bit.

Q: Do you expect your interest cost to rise?

A: The central bank has reached an optimum level. Going forward, we should see rates coming down gradually.

Q: You have done about Rs 22 crore by way of interest charges in the quarter gone by. Will this more or less be the pro-rata interest cost or should we factor in a higher interest cost?

A: Much higher. We are slightly rationalising our interest costs by switching over from the exiting Indian Rupee norm to ECB (European Central Bank) or similar structure where we are going to save another 3-4% of interest.

Q: Have you already swapped any loan?

A: Those loans are in process and will be swapped within this month. So, the interest rate cost will come down instead of increasing.

Q: Your sales part has actually seen growth this time. Take us through the segments as how you have done in terms of exports and may be the domestic market?

A: We are doing almost 75% exports and 25% domestic sales. Out of 75% more than 50% is from US market and around 25-30% from European market and remaining is from the rest of the world.

As far as the product line is concerned, we have two different lines; one is the soft toys and second is the furnishing. 65% revenue comes from the furnishing and 35% comes from the toys.

Q: Since you have such a strong exposure to exports, tell us what the sentiment is like considering what we are seeing in the US and Europe? Is there any sort of order contraction, renegotiation, etc, happening?

A: No, as of now from the consumer point of view, they have not discussed anything like that. The main issue is at the sovereign level and not at the consumer level so far. Hence, we have not received any renegotiation of orders or deferment of orders.

Q: Do you have Chinese competition or do you have any manufacturing outlets in that country?

A: We don't have any manufacturing outlet in China but definitely we buy all the raw material for toys from China, where we are getting for very competitive prices because of our large volumes.

So it gives us some cost rationalisation, where we can compete with China because we are not into mass market, we are into mid market, we have lot of value additions there in the toys. So, our product line is different that way and our margins are higher as compared to China.

Q: You must be facing competition from other Asian countries; do you have a currency advantage at all?

A: Our currency is more or less stable.

Q: It's not a factor at all in your net profit margin?

A: Almost 65-75% is naturally hedged because 25% sales come from the domestic market. Around 30-35% is our import content and we are investing it in Indian Rupees which is close to 15-20%.

Q: You had a plan for a GDR (Global Depository Receipt) issue what happened to that, are you shelving it?

A: At that time, the market was not conducive, so we withdrew GDR. At present, we don't have any plans for the GDR because we are doing the capex out of internal accruals and debt. So for next one year or so there are no plans for any further GDR issue.

Q: So how much will your debt increase by the year-end since your GDR plan was fairly big. It was about USD 32 million, does that completely get replaced by debt?

A: That money can get substituted by internal accruals in two years.

Q: What about your retail plans because we understand you are planning to open around 400 stores, just takes us through that quickly?

A: No, right now that's not our agenda because we have only 10-15 stores. The market conditions are also not that favorable, so we don't have any plans to go for 400 outlets.

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