Defence orders to boost sales in 5 years: Walchandnagar

This year Walchandnagar Industries stock gained 130 percent on hopes of huge defence orders backed by governments increased focus on defence manufacturing.GK Pillai, MD & CEO of Walchandnagar Industries in an interview to CNBC-TV18 spoke about the impact these orders would have on the performance of the company going forward.He said the company is very optimistic of increasing its sales from Rs 150 crore to Rs 1000 crore in the next five years.He is also hopeful of the returning to positive profit after tax (PAT) this year. "In terms of performance FY14 did exceedingly well compared to FY13 although on the gross there is still some loss due to some of the long pending projects, which are not yet completed," he adds.However, he clarified that defence orders generally do not have high margins.Walchandnagar Industries is a heavy engineering and project execution company. It has diversified business offerings across core sectors with focus on EPC / Turnkey Projects, Hi Tech manufacturing, Engineering Products and Engineering Services.Below is the transcript of GK Pillai's interview with Sumaira Abidi and Nigel D'Souza on CNBC-TV18.Nigel: Can you take us through how much of the government impetus on defence will affect your order book for the coming couple of years and also what is the percentage of the total sales that does defence account for in your current sales book?A: In our current sales book we do about almost Rs 150 crore. Based on government policies as well as the thought process that is going on, our aim is to increase Rs 150 crore to almost Rs 1,000 crore in the next five years. Sumaira: Could you tell us what kind of margins you enjoy on these defence orders and what would it take your blended margins to?A: The margins in terms of defence orders are not very high. It’s more a strategy and it’s a challenge for the defence orders. As I said we do about Rs 150 crore now on sales and our game plan is to go up to Rs 1,000 crore in the next five years. Nigel: Let us talk about your company’s performance on the whole – the four of the last six quarters they have been loss making for you. What can you guide us in terms of profitability that we can look forward to in the next couple of years? FY15, FY16, which quarter is going to be the real big one?A: In terms of performance FY14 did exceedingly well compared to FY13. On the gross there is still some loss. The reason for this loss is basically on account of some of the long pending verdict, which is not yet completed. Therefore, these large projects are impending our cash flow as well as bottomline. However, coming back to next year rather this particular year we are planning for a positive things and I am confident about that Sumaira: Your finance cost continues to remain high. Can you tell us what your current debt is at and any plans to bring it down?A: If you look at my finance cost, it is high. Rs 210 crore of my money is locked up in returns to money with the two large projects; one at Ethiopia and other at Tamil Nadu Electricity Board (TNEB). The TNEB project will be starting the commission of the first unit in the next month or two, by January it will start. So once the commission starts the retention money will be to the tune of Rs 200 crore will start coming in side and that will bring change in the overall cash flow situation.