Capital raised will be used to augment working capital: Goodluck

In an interview to CNBC-TV18, Ram Agarwal, CEO at Goodluck India spoke about the latest happenings in his company and sector.Below is the verbatim transcript of Ram Agarwal’s interview to Nigel D’Souza and Reema Tendulkar on CNBC-TV18.Nigel: Could you give us some details, what is the total amount you are looking to raise via this preferential issue and also promoter stake is roughly around 60 percent, what is it likely to go up to?A: Company is going to issue 10 lakh warrants on a price of Rs 125. For that board is meeting on 27th for the allocation. Current promoter stake is almost 60 percent and it will go to almost 62.5 percent by this.Reema: You said the price is Rs 125 right?A: Yes.Reema: Could you tell us what the money will be used for?A: The money will be used to augment the working capital because in the recent months there has been a rampant price increase in the steel prices. Basically it is more or less a token of confidence what promoter has in the company and its business model. That is why company is putting it at Rs 125.Reema: Apart from promoters, anyone else will be participating, are you giving it to any particular institutional investors?A: It is being solely given to the promoters.Nigel: Could you tell us on the ground how are things, what is your order book like currently? I think exports are close to around 30 percent of your business, has that changed?A: Basically exports and everything, rapid price increase is coupled with demonetisation, market is not looking up but in our business model, we are having a business model of regular products and the value added products. So, value added products are doing good because there is no dearth of demand and we are still having order book of seven to eight months. So, orders in the value added sector is not the issue but whatever the product, which is exposed to local market due to the impact of this demonetisation and rampant price increase, it is affected. So, it may take one quarter.Nigel: What is your order book then?A: Order book is almost eight months because we are having many products. In auto tubes it is almost four months and in forgings it is almost six months.Reema: You said that you are raising money for your working capital needs because we have seen a sharp increase in your steel price. Could you tell us what the working capital requirement is and secondly how much has been the steel price increase which directly affects your company?A: Basically, if you see from August onwards, price increase has been to the tune of 40 percent. The price was almost Rs 27,000 hot rolled coil at that time and now it is hovering around Rs 39,000. So, 40 percent increase is there.Reema: How much of this have you been able to pass on? A 40 percent increase in raw material and of the output products?A: Basically there is always a time lapse. There is a time gap between the passing of the prices because it is normally quarterly. However, unfortunately the steel producers, they have a monthly pricing. So, for one quarter, in whatever quarter it comes, it affects that quarter. However, the unfortunate thing is, prices are going up rampantly in every month.Nigel: Your finance cost for the last quarter was Rs 12 crore. If I just extrapolate that, it is more than Rs 40 crore on a per annum basis. What is your total debt book currently? How much of loan have you taken?A: Loans, Rs 90 crore is the long-term loan and Rs 240 crore is the short term working capital loan.Nigel: It is nearly around Rs 350 crore roughly?A: Yes.Nigel: You were also talking about value added products, you have increased that proportion to you total revenues. It was around 30-35 percent a few years ago and then it moved to around 45 percent, what is it currently?A: Currently it should be almost 56 percent.Nigel: Your margins are still under pressure, it has come down to around 8 percent from around 10.5 percent. What is going wrong over there?A: The reason is only rampant price increase because the steel producers have made a cartel and they are increasing prices. Earlier there was nothing, so, government has put minimum import price (MIP), so prices increased. Now coal prices have improved, now they are increasing the prices. So, market is not stabilised.Without stabilisation of the market, the projects cannot go up. Whatever projects we are taking, they are having execution period of four to five months but in four to five months if you are increasing prices every month by 10-12 percent, what will happen. So, government has to do something. There has to be some stabilization in the market then only we can go up.Reema: As of now how much of the price increase have you been able to pass on, we understand there is a lag but as things stand today if you could tell us?A: Last quarter up to September price increase we have been able to pass on. However, the price increase in October and November, we have not been able to pass on, till today.Reema: What about the margins in the December quarter, how much can it be affected?A: Margins in the December quarter, it will be impacted heavily.Reema: Any numbers?A: Numbers I cannot tell you right now but definitely it will be impacted because the quarter has not ended. I will get prices only in January to March quarter, whatever has increased in October to December.Nigel: One of your clients are even the India Railways. We will have the Budget in the next one month or so, what is your current proportion in terms of the order book coming in from the Indian Railways -- first part of the question and second part, you are saying that steel companies are forming a cartel, why don’t you go ahead and complain against them?A: Everybody knows about the cartel because all are increasing the same prices. As a common man, anybody can interpret that they are in the cartel. However, there is no proof and I cannot say anything but it is impacting. If everybody was different, somebody have increased prices by Rs 5,000 , by Rs 6,000 but now everybody gives equal price increase at the same time. So, I suppose this is problematic figure which government should look into.Nigel: Railways?A: Railways, we have started only three months back. We have got a Dedicated Freight Corridor Corporation (DFCC) project in Jammu and Kashmir. So, in this financial year we will have only a miniscule of 3-4 percent but next year onwards, we will have a greater part of the railways.