Will sustain margins despite high input costs: Tube Invsts

In an interview with CNBC-TV18, L Ramkumar, managing director of Tube Investments, spoke about the latest happenings in his company and the road ahead.

Below is a verbatim transcript of the interview. Also watch the video.

Q: We understand that you are targeting a 50% jump in your high margins, your premium bicycles in the current year that has just began, give us an idea of how this might increase your margins?

A: As premium segment is not very large in numbers. It is still 10% of our total production and sales. This would have some impact on the margins but still it would not make such overall impact on margins probably by 0.2% or so.

Q: Your margins anyway have done well for the last quarter for which we got your numbers. Your operating margins are at 14.3% versus a  year ago numbers of sub-10% and even if you took the whole of previous year, it was still at 11%. Will you be able to maintain that run rate? 

A: Yes, there could be some pressure this year because of input cost increases. As you know steel has gone up, fuel prices have gone up but we are working towards maintaining around the same margin through efficiencies as well as volume increases.

Q: So are you saying you will be completely be able to offset the cost pressures that you are facing through operational efficiencies or could we see margins dipping somewhat in this month?

A: We are hoping largely we should be able to recover the cost increases given the growth in the market. Plus there could be some shortfalls because everybody is under cost pressure across the board, so some of it will have to be made good by efficiency, improvements and volume increases.

Q: Your performance in the last three quarters, if you were to even repeat your December quarter performance, you will probably be heading at 30% revenue growth, will that be a run rate which you can maintain even in FY12?

A: FY12 we are definitely looking at more than a double-digit growth. Our growth is going to be largely driven by auto sector growth which continues to be strong as we are speaking now and also the bicycle industry growth. We are little cautious about growth next year. We would not like to say it will be exactly the same what it is this year, though we would like it to be so. So it could be in order of 15-20%.

Q: What is the percentage that comes from the auto sector and percentage on cycles?

A: Cycles is roughly 35% and of the balance 65% you can say 70-75% comes from auto sector.

Q: The other point with relation to Tube Investments is that you have 74% stake in the general insurance business and also a 60% stake in Cholamandalam Finance. Is there any plan to unlock value from these investments that you have in the other businesses?

A: At the moment there is nothing that is being planned both these businesses are being planned and as you know that Cholamadalam Finance is turned around in terms of lending only asset backed financing and results are already there in the nine  months and this would continue.

Q: Any money you will raise for capex and will that be via equity, how will your equity look by the end of the year,  more or less the same or will you be raising more shares for 2012?

A: FY10-11 is over; at the moment there is no plan to raise equity. We would need some money for capex. So apart from internal generation, we plan to take up some loans.

Q: How much is the capex?

A: At the moment we are looking at something close to Rs 400 crore.