See operating margins at 8% next year: Havells

In an interview with CNBC-TV18, Anil Gupta, Jt MD, Havells India spoke on the company's business plans going forward.

Below is a verbatim transcript. Also watch the accompanying video. Q: You possibly could close FY11 with margins of around 5% for Sylvannia, what could we possibly expect that to scale it upto in FY12 and maybe even FY13? A: As we have been communicating that we started a major restructuring programme since the crisis in 2009-2010. In the mid of 2010, our entire restructuring was completed which included a cost reduction of almost about 30-35 billion euros, fixed cost reduction, which has resulted in improvement in margins, which is shown in FY11 numbers of 5%. If we analyse this and not take any growth number in the coming year because the markets are still weak in Europe, which is 70% of our market, we definitely feel we will be in a position for 8-8.5% operating margins next year. Q: Could you tell us does that mean that no equity infusion will be required in Sylvannia from Havells side and when do you anticipate a recovery in the European markets, the largest ones? A: We have already put in close to almost about 30 million euros post the acquisition and post all the crisis, which included restructuring payments to be done. But from now on we do not expect any further equity infusion from Havells. This was done post the crisis and I believe Sylvannia is sustainable on a standalone basis without any equity infusion. Q: European markets? A: European markets are getting better but some markets especially the northern European markets like Germany is showing signs of improvement, France is showing signs of improvement. But if you still look at Spain and Italy and the so-called seven European markets, they are still weak. So it is a mixed bag in Europe and overall we see that there is not much growth coming in atleast in the current scenario. But as I said we have reduced our cost structure in the sense that even this year the levels are lower, we will be able to make profits in Sylvannia. Any improvement coming in the next financial year will be an upside. Q: Let us talk about even possibly any of the one offs because there was a one-off tax which you paid last quarter with regards to Sylvannia. Are all of the one-offs completed as well? A: Yes, all the one-offs have been completed in terms of either restructuring payments or tax payments. So going forward, we will be looking at operating numbers only. Q: What about your switchgear entry into the UK, which was expected to rollout possibly in April 2011, how exactly is that panning out and have you assessed what the market is like and what sort of internal targets you would possibly be working with? A: The European markets have a huge barrier to entry for any technical products like switchgear. But we have a major advantage of having a brand and channel in the market because of the acquisition of Sylvannia, especially in the UK because we have been supplying switchgear not in our own brand but for an OE supplier over the past few years. So we have had a lot of experience. Right now the process is there to get the product range ready for the UK market. We believe in April and May we will be launching the switchgear. It will be a slow entry, it will not be many huge numbers in the first one-two years. But definitely it will be a very sure entry. Q: More pressure on your margins on account of commodity price increases for the domestic business? A: We are adjusting our sale prices rather than trying to reduce our cost structures even if the raw material prices are increasing. We are quite confident that we will be able to maintain our margin levels despite the commodity price increases.