Goodluck Steel Tubes expects its business to improve from the declining raw material costs this fiscal. Speaking to CNBC-TV18 MC Garg, CMD, Goodluck Steel Tubes says the 15-20 percent cut in raw material costs will be passed on to the finished products but with a time-lag.
The company deals mostly into flat steel products, which is hot rolled coils (HR Coils) and buys long products only for the forging division, he said. Though imports are cheaper than the domestic raw material, Goodluck has been sourcing materials domestically because of its location, he said.
Commenting on Goodluck’s future plans, Garg said: “Capacity expansion plan for structured division is on and revenues will come in the next financial year.”
Below is the edited transcript of MC Garg's interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.
Reema: We have seen steel prices come off a fair bit. Generally commodity prices are also under pressure because of lower inflation. All this bodes well for the company’s margins, give us a sense of how your margins will be in this quarter as well for FY16?
A: It is very difficult to give the exact number but I can tell you this quarter is going to be better than many quarters in the past.
Mangalam: A word on your raw material as well. Two questions- one, what kind of steel is it that is required for your raw material, is it longs or is it flat products? The second is that do you’ll get it domestically or do you’ll import it, considering, the import prices have become cheaper as well on the back of Russian Ruble and Chinese Yuan depreciation?
A: Most of our requirement is flat products, that is hr coil. We buy long product also for forging division. Most if it we are buying locally but off late the import has become viable because imports are cheaper than domestic prices. For companies like us which are located up country, that is, distanced from the ports, the domestic is better than import.
Reema: In this quarter so far what is the percentage of raw material decline that you have seen and secondly would you be passing on the benefits by lowering the product prices?
A: Price have come down by almost 15-20 percent in this quarter and naturally we will have to pass on this but there is always a time-lag - when the prices rise also there is a timeline we can pass on the increase, there is a timeline when we have to pass on the decrease also.
Mangalam: We understand that about 40 percent of your products are exported and the last time you spoke to us you said that you expected 20 percent growth in exports because Europe may get better. Do you see that happening and do you hold that or do you think it will get worse?
A: Exports are not happening the way we expected it to because of a slackening demand from overseas markets. With problems in Europe and with Euro there are definite pressures on exports.
Reema: You told us that your costs have come down by 15-20 percent this quarter but there is a time-lag before you have passed any of these cuts to your consumers. When are you likely to cut prices and if yes by how much?
A: It is difficult to say as it is business to business dealing and the price are continuously being adjusted to the benefit of the customer but not to the extent to which the prices have dropped of the raw material
Mangalam: We also saw a bump up in your capacity last quarter and you do have about Rs 50 crore worth capex plan for FY16 as well. One, where do you plan to fund it and second, with that capacity coming in to the picture, how much of a sales increase do you see in next year?
A: That expansion plan for the structure division is already on. This revenue will start coming in the next financial year; the project will be over by end of this year.
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