In an interview to CNBC-TV18, Kapil Mehan, managing director, Coromandel International says the company’s net interest margins (NIMs) are likely to improve by 40- 50 basis points (bps) on the steep fall seen in global crude prices.
Furthermore, Mehan says the company is not likely to have more than a 5 percent production impact on the damage caused by cyclone Hudhud.
Below is the verbatim transcript of Kapil Mehan’s interview with CNBC-TV18\\'s Anuj Singhal and Ekta Batra.
Anuj: The first thing I want to understand is that will you have any kind of benefit from lower crude prices. Would crude be part of any of your input costs and would you have any kind of beneficial impact?
A: Yes, the beneficial impact would be in the form of ocean freights and maybe overall impact that will have on the nitrogenous part of raw material equation where we have ammonia and urea products because they are directly linked to gas prices and general energy prices. So there we could see some benefit flowing in. In the packaging material polymer prices have come off a bit in the recent past but they should come down further. So those will be the sort of small benefit that we expect these oil prices is to have on our business.
Ekta: If in case on a hypothetical basis all things being constant or Ceteris paribus in terms of revenue and you did margins of say, 10 percent in the previous quarter how much benefit would crude being lower help you in Q3 and what could the margin picture look like?
A: It would be a few basis points monthly. I have not done any calculations of that but I suppose it should not be more than 40-50 basis point impact on overall basis but that will play out over a period of time because ammonia which is one of our key raw materials which is directly related to gas price etc but has been holding high but it has started now slowly softening. So that should flow in the benefits that over the next two to three months. Similarly the packaging material prices have come off little bit in the recent past by about four to five percent points. So that is a small saving that we have. Then freight costs in general both for ocean freight as well as domestic freights will come down. So, let us say 40-50 basis points is something that we can expect to have an impact.
Ekta: I just wanted to touch upon your Q3 revenue because we do understand that there could be a one off impact because of the cyclone that took place. So how of disruption did you see and how would it impact your Q3 numbers?
A: We were disrupted in Vizag site only and that also was disrupted for a period of one month and there again we had started back and in the month of October there would be some impact. November we sort of came quite close to our normal production so impact on the overall quarter will not be four to five percent. It is a little over five percent of our production for the quarter overall, because other sites have been producing well.
Anuj: Your debt is quite high at this point in time. Any issue over there in terms of next few quarters. We believe you have problems of serving some of these debts because of the kind of financials you have?
A: If you look at our debt profile more than 80 percent of our debt is really short term debt which is in the form of financing our raw materials and receivables etc. So last quarter when we had closed our September quarter we had some punching of raw material shipments etc which we have to, as per accounting standards, show as working capital. And that is how the borrowing levels look higher but otherwise our long term borrowing quantity used to be very healthy.
So, I don’t think that is an area of concern. Now that those inventories are getting consumed so that will improve. Our receivables have been improving month-on-month (MoM) and that continues to improve because market demand supply fundamentals have improved. The demand in Rabi has been good. So with that overall we expect our working capital to improve over the next few months.
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