HV Kanoria, Chairman and Managing Director, Cheviot, says the jute industry is currently facing shortage of raw jute and the jute commissioner might appeal for dilution of the recommendation to some extent to overcome supply pressure.
HV Kanoria, Chairman and Managing Director, Cheviot, says the extension of CCEA order on mandatory usage of jute packaging for the food grain and sugar industries, will not lead to any incremental benefits to the jute industry.
Kanoria says, the jute industry is currently facing shortage of raw jute and the jute commissioner might appeal for dilution of the recommendation to some extent to overcome supply pressure.
The company is investing heavily in capex to meet the increasing demand, Kanoria says, adding that it is difficult to estimate growth numbers as the commodity prices are highly speculative.
Below is the transcript of HV Kanoria’s interview with Mangalam Maloo and Reema Tendulkar on CNBC-TV18.
Mangalam: We got a recommendation from the Cabinet Committee on Economic Affairs (CCEA) yesterday, which approves mandatory use of Jute packaging in agri-products upto 90 percent, and 20 percent for sugar production. This was in 2014-2015 as well. Now this is has been extended to 2015-2016. How does that change life for Cheviot?
A: That does not really affect much because CCEA old recommendations continue and the industry would continue to get the benefit of the mandatory orders. In the current year, there is a shortage of raw jute and because of that, the industry is finding it difficult to supply the entire material and some short-fall will be there because of which some dilution is likely to be recommended by the jute commissioner.
Reema: While we take you point that this is just purely an extension and therefore, on a year-on-year (Y-o-Y) basis, there will be no difference in the company’s outlook, but tell us if the extension had not taken place, then what the hit would have been? When it was first introduced, what was the benefit that companies like yours saw?
A: Definitely, there is a benefit because there is a protection to the local industry and the main advantage is that food grains which are procured for packing rice and we are mandated to be used they are packed mostly in jute.
Mangalam: But, if we look at your earnings before interest, taxes, depreciation and amortisation (EBITDA) margins in the first half of the year, they have actually surged from 9 percent in the first half of last year to 16 percent, so do you expect that to continue and is there any room for improvement as far as your EBITDA margins are concerned?
A: Jute is a sector where quarter-on-quarter (Q-o-Q), there are very major changes, so the current six months have been extremely good in proportion to last year or in proportion to the same quarter last year. And the industry being very speculative in nature, we cannot make a firm commitment about the profit of the next quarter or the rest of the year. But, yes, I can say that the industry is doing well and the company is doing well and we will continue to show good results.
Reema: Because supply is less than demand, as you indicated, would the company be interested or be looking at increasing the total production that you can do, any capital expenditure (Capex) that you have lined up?
A: We are investing heavily in Capex. We are modernising the machinery, we are buying the latest equipment, we are also setting up large weaving shed where we will put up automatic rooms. So, along with the profit, we are continuously investing on Capex.
Mangalam: But, what are the opportunities going forward, because I was going through some reports and they have come up with some inventions where jute can actually be used with polypropylene be used in car products and stuff as well. So, are you seeing any of those modern opportunities coming by?
A: Those are very niche areas and jute as a percentage is very low. And there are different players in different fields. We have an special economic zone (SEZ) unit in Kolkata where we have the latest looms like any textile company and we export these special resham cloth which we make.