Expect new plant to increase FY17 sales to Rs 1400 cr: Good Luck

Good Luck Steel is likely to post revenues of at least Rs 1,400 crore in FY17, said MC Garg, the company’s chairman in an interview to CNBC-TV18 on the sidelines of the Valorem Advisors Conference on Monday.Goodluck is into manufacturing and exporting of steel products for automobile, cold rolled steel, hot dip galvanized steel, steel products for engineering industry, etc.

Garg pointed out that the company is export-oriented, with 35 percent revenues coming from that segment. Even imports of hot rolled coil (HRC) are for export products and, therefore, the company is not subject to a minimum import price, he added.

On the impact domestic price increases, Garg said presence in the original equipment (OE) segment ensures that any price increases can be passed through.

He said the total order book of the company currently stands at Rs 500 crore, of which Rs 250 crore is in the structured division.A new plant has been commissioned and additional revenue of Rs 300 crore is expected from there, he said.Below is the transcript of MC Garg's interview with Nigel D’souza on CNBC-TV18.Q: Before we talk about the business, I want to understand about minimum import price (MIP). What kind of an impact does it have on your business? From where do you source your hot rolled coils (HRC)?A: HRC, the price of steel, it will bring stability to steel prices and product prices. It will definitely have an impact. Our margins are bound to improve.Q: Let us just rephrase that question. The imposition of MIP is a benefit for Good Luck Steel? You do not import any part of your requirement? Everything goes well for you?A: We import. We are exporter company. Our exports are almost 35 percent of our product. And, we are allowed to import without any MIP for our export products. And it improves our margin.Q: So, all imports are only for export based products or is it some part of your imports, will it hit part of your domestic margins at least?A: No, absolutely not. We will only import for our exports. And we are trying with our suppliers, if they can give some mechanism, so that we need not import and if they can supply for export, at the import price parity, then it will be a good thing for India and for the company, which they are saying they are working on.Q: But even domestic prices, they have gone up by a good 10-15 percent in the last one month. Will that not hit your margins?A: It will not. We are mostly into the OE business and there is an almost pass through. All price increases are pass through.Q: Then let us talk about your order book. You have indicated in the past that you have your structure division business, that is good for the next nine months odd, could you give us that number? What is your current order book at?A: Almost a year. We have booked in structure division for almost a year. And other orders books almost for 2-3 months.Q: What is that number? How much is your order book currently? Is it at around Rs 1,000 crore approximately?A: No. For structure division it is around Rs 250 crore.Q: Okay, and your entire order book?A: Entire book will be roughly around Rs 500 crore. Q: You were looking at enhancing your capacity particularly for your engineered structures capacity to double. Is it likely to come on in the near future? Has it already come on from Rs 24,000 tonnes to around Rs 48,000 tonnes? Has it come on stream already?A: The plant has been commissioned recently, only last week and the revenue will start flowing in the next financial year. Q: So, what is the total revenue that you can expect after doubling the capacity?A: It is almost Rs 300 crore.Q: So, for FY17, what will your revenues look like because your nine months ended for this year is looking around Rs 770 crore. You should end the year with around Rs 1,100 crore. So, for FY17, revenues of around Rs 1,400 crore on the cards?A: There has been a volume growth in the last year also. But, value growth has not been there due to the drop in the prices although the price has dropped by almost 26 percent. So, we are expecting if the price goes up, then we should have a substantial growth in our topline.Q: So, currently, your revenue is at around Rs 1,100 crore odd. Add this Rs 300 crore, we can expect around Rs 1,400 crore for FY17?A: Absolutely.Q: Your debt, you have been saying that you are looking to deleverage the balance sheet. What is your current debt because your finance cost is currently at around Rs 30 crore for the quarter. What are your plans to deleverage your balance sheet? What is the debt currently? Could you help us with those numbers?A: We have not in spite of expansion, our long-term debt are fixed. They have not gone up because whatever we have borrowed, we have paid back almost the same amount. We have not increased any working capital. We are trying to improve our working capital cycle to keep our debt under control. And with that we are trying to increase our turnover. And with that we will continue to do. Then next year, we are going to consolidate our operations and have no plan for capital expenditure (Capex) next year and with the surplus generated, we will further deleverage our operations.Q: So, the debt will look like at the end of next year?A: Maybe around Rs 1.3-1.25 leverage.