See margins improving substantially in Q4: India Glycol

Monoethylene Glycol (MEG) prices have shot up to USD 250 per tonne in the past two months. In an interview with CNBC-TV18, Rakesh Bhartia, CEO, India Glycols spoke on the recent spike in prices and gave his outlook on margins going forward.

Below is a verbatim transcript. Also watch the accompanying video.

Q: Initially MEG prices have shown an uptake. But we believe that since your raw material depends on molasses, you will benefit in terms of an improvement in margins. Can you quantify what kind of margins we can see in Q4 in FY12?

A: MEG prices have gone up quite sharply during this quarter. In fact, they were at about USD 1000- USD 1050 last quarter, and presently they are prevailing at USD 1200- USD 1250. So far as raw material prices go, they have actually remained stable, because we have seen a period where sugar production has increased.

But at the same time I must strike a note of caution that we expect raw material prices to go up further, because as you may be aware, the government has initiated the fuel ethanol blend programme. Over a period of time, we expect raw material prices may not be prevailing at the existing levels, and could actually go up. But more importantly the outlook for energy still remains very buoyant.

Q: So what kind of improvement in margins? I mean in Q3 if I am not wrong, your margins were at around 9-10%. Could we see an improvement substantially in Q4?

A: I would think so. I do expect margins to improve significantly.

Q: What exactly is the kind of realizations you enjoy at this point in time and how much do you expect raw material prices to go up by, that you referred to? Because the hike in MEG prices has been pretty stellar(not sure), USD 250 per ton in the last two months?

A: As far as realizations go, they have increased about Rs 10-12 per kg, on the MEG and as far as the raw materials go, I expect prices to move up by at least Rs 2-3 per litre.

Q: So what kind of a revenue run-rate do you think you could do, with the way your run-rate is currently? I think a kind of Rs 427 crore is the kind of base you are sitting at in Q3, what kind of revenue run-rate you can maintain and even in terms margins that my colleague was referring to, do you think you could do significantly higher than the 15% level?

A: As far as the revenue run-rate goes, I expect revenues to increase about Rs 550-600 crore per month, starting from the month of May. As far as margins go, like I mentioned, without getting into numbers, I do expect an improvement in margins.

Q: Petro-chemical prices across the board have increased. Aside of MEG, are there any other products where you see improvement in order?

A: In fact across all product categories that we are engaged in, we also do potable alcohol, we see a sharp rise in prices on the potable alcohol side, we also do a little bit of guar gum, and guargum prices have also moved up considerably. At the same time the demand for products from oilfield sector remained extremely robust.

Q: You have been able to pass on a lot of these hikes to your clients, people like in the paint industry, or in the textile industry. Are they comfortable absorbing the price of this magnitude?

A: They have. The most leading aspect is increase in prices have been passed on quite successfully to some of our consumers. So we have seen some setback in demand in the personal care sector, but at the same time I don