Venkatesh Valluri, Chairman & President of engineering and capital goods player Ingersoll Rand India feels the capital goods industry is showing some signs of growth.
Although the company witnessed 15 percent growth in Q1 on year-on-year basis, it was in investment/capex mode over last 2-3 years that curtailed margins. Going forward, he sees early cues of margin improvement.
Currently, the company has Rs 500 crore cash on books with investments funded via internal accruals, he says in an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy.
Below is the verbatim transcript of the interview:
Q: Give us an idea of what kind of sales you are expecting over FY15 and FY16?
A: In the first quarter of this year we grew by about 15 percent compared to the first quarter of last year, so that started demonstrating that the green shoots are coming up, the capital goods industry is showing some kind of signs of growth.
As I look at it in the future and as I see that the large number of capital projects are being released whether its in the area of defense, whether its in the area of ports, infrastructure, we do see Ingersoll Rand plays and all these areas are key important role. So I am hoping that the growth percentage in the future should be reasonably healthy.
What the rates would be. We essentially follow how infrastructure goes up in the country and once infrastructure grows up then we are the follower of the infrastructure growth and that’s why we see growth. So, I am quite bullish and I am quite positive that in the future Ingersoll Rand should have a reasonable growth rate coming through.
Q: What kind of trajectory are you expecting to see in terms of margins because in the quarter gone by your margin profile had slipped to about 6.5 percent? This compares to 9 percent that you use to enjoy in FY13. Going ahead what kind of margins do you think you can clock in and what will be the segments that will lead it there?
A: The reason for our margin to take a bit of a backseat has essentially been because we have been investing and from my perspective, the best time to make the investment is when the business cycle is low. So we took a decision over the last two-three years to make capital investments in setting up a new plant in Chennai and now upgrading our plant in Naroda even though the growth was not there but now when the growth comes we are completely prepared to serve the market. If you look at the operating leverage that we should get in the future should be fairly healthy and therefore the margins in the future should again get back to our original estimates or even better than that.
Q: What are the original estimates – double digits?
A: Hopefully yes, if the operating leverage of every incremental dollar revenue we get, now should start flow, the gross margin should stay afloat through to the bottomline.
Q: You spoke about when the growth picks up. Are you even seeing early signs of the orders coming in?
A: As I mentioned earlier, our first quarter this year has clocked in a growth of about 14 percent and that’s also not with full-blown investment in the infrastructure sector. Our order book looks reasonably healthy so I am assuming that as the new government starts releasing more constructive policies in the area of coal, in the area of defense, in the area of pharma, healthcare etc, which are fundamentally the markets we serve. I think it should be hopefully a lot more positive for us in terms of growth.
Q: For the year as a whole, will FY15 be better than FY14?
A: We all hope so. Hopefully, it should be better than FY14 and one of the strategies we have deployed has been even the government and the Prime Minister has now said ‘Make in India’ which is a very heartening kind of input.
Over the last three years, we have followed these three processes of saying By India, For India, In India and that has been the strategic approach. When I say ‘By India’ I meant how we create markets in India for our products and ‘In India’ has been our innovation strategy of innovating products in India for the market what we have to create and the entire design and engineering has been done by the engineering centres in India. So, we have invested in creating a space in the organisation where we create markets, where we innovate products for these markets and we manufacture these products for the markets we operate in.
Q: Can you give us couple of more numbers. How much have you invested so far in terms of capex, how much do you plan to invest and where will that money come from. What is the debt on the books and do you plan to raise any capital?
A: If you look at our numbers, we have no debt at all. Everything has been through internal accruals and some are the old cycle businesses we sold. Our cash position has been extremely healthy. We still have about Rs 500 crore in our balance sheet and the investments that we made in the last two years – one has been in a Greenfield project in Chennai and second is the state of the art facility that we are building up at Naroda in Ahmedabad. Both investments are close to about Rs 300 crore.
Q: Is delisting the share an option? Promoters stand at 74 percent.
A: No, we are not looking at delisting and I did make this comment even few years ago that we do not expect Ingersoll Rand to delist. We are fine with the kind of management control what we have and our corporate governance has been extremely good. So from that respect we do not believe that a delisting is going to give us any major benefit.
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