See 40% revenue growth in FY11, FY12: Alok Industries

In an interview with CNBC-TV18, Sunil Khandelwal, CFO, Alok Industries, spoke about the latest happenings in his company and sector.

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

Q: First straight away down to the cotton prices that have resumed very sharply. There are many textile firms that are now ramping up their polyester production because the price gap between cotton and polyester is widening. Are you doing the same and what kind of production are you looking at?

A: Definitely looking at the rising cotton prices, the trend is now moving towards polyester. We are also doubling our polyester capacity. In fact, our new plant would commence operation in this month itself and gradually it will optimise by March. So, it will double our capacity from 600 tonne a day to 1200 tonne a day.

Q: What is the percentage of raw material costs in your total cost? I mean cotton cost really when I say raw material.

A: It is about 50% of our total cost. In fact if you look at the finish fabric, it is about blended 50-30% cotton and polyester. But only cotton, cotton is about 30% of the fabric cost.

Q: So are you going to be passing on any of that price increases to buyers? And where do you see cotton prices stabilize at?

A: Definitely, we have been able to pass on so far the rising cotton prices. We would continue to do so, if it further increases. It is difficult to take a call on cotton prices because internationally it is still in short supply. So this is the international prices which are driving the domestic prices. Nonetheless, this the season for cotton and we are going ahead with our cotton procurement. We will be buying cotton for the next eight-nine months now and hope that probably it would remain at this level.

Q: Clearly, I asked you about the raw material prices only because it is very obvious that you are able to take on whether the cost and even pass it on because the margins have improved significantly whether you look at second quarter or you look at entire last seven quarters. Can you maintain earnings before interest, taxes, depreciation and amortization (EBITDA) margins of 40-42%?

A: Of course EBITDA margins are not at those levels, they are at about 29% or so. It would be in those regions itself, may be 1-2% here and there. But we expect it to be around those levels.

Q: Talk a little more about your revenue. We have addressed the concerns that you have seen in terms of raw materials. What about your revenue front? In the last one or two years, you have been increasing your production base and the last time we spoke with you, you indicated that in this particular fiscal, that is, FY12 is one you are going to see all of that production on stream and aid your revenue. Can you give us some sort of trajectory on what kind of run rate can you maintain in terms of your revenue and what would you see in FY12?

A: If you look at the current financial year also, our overall revenue, six months have grown by 40%. Within that, exports have grown by almost 17%. And of course this is a very good growth rate. We expect to maintain this for the whole of this year. But going forward, again as I said last time also our new capacities are coming in place with polyester and some of the earlier expansion will give the full benefit, I think maintenance around this kind of a growth even for 2012 should be within our target.

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Q: This Burkhina Faso Plant, when does it start functioning and how will it impact margins or revenues?

A: In fact that is the plant that we are setting up in collaboration with the Burkhina Faso government; they have invited us to set it up there. We would be holding 51% stake with the investment of just USD 3 millions. This is sort of a CSR for the Alok, it is first of its kind plant in the Burkhina Faso. We have been buying cotton from there for some time. This project would start this year, and we expect it to complete it in next two years from now.

Q: Last time you told us that you will be through with your real estate sales by 2011. Now if it is FY11, then you should be ready with the money in two-three months. Can you give us an idea what is the impact in the P&L in FY11 or FY12, when the sale happens?

A: In fact, in FY12 we have been saying all along because the major property, that is, Peninsula Business Park, Tower B, that we have procured is getting ready now. So, it will take about a year looking at the size to monetise that.

In terms of the overall inflow to the cash flow, we expect about Rs 1,300 crore or so to come from the Peninsula Business Park and some other real estates like sale of land and a part of commercial property in Lower Parel to give a another Rs 400 crore. So, in total, it should give us about Rs 1700 crore this year.

In terms of profit, the real estate subsidiary level, we expect to make profit on the land part of it, so about Rs 200 odd crore kind of profit can be expected.

Q: Debt/equity standing at about more than three times in FY10, how much do you think you could bring it down to in FY11 and FY12 henceforth?

A: In fact we bought it down below 3, we bought it down close to 2.5 because we just had our QIP on the last day of March. So, our debt/equity has come down as on March 2010 itself. We see that from going onwards with the inflows of money from the real estate and from the operations, the debt/equity to continually improve. We are targeting our debt/equity of 1.5 by 2013-14.