Rain Ind sees uptick in volumes & operating margins in CY15

For the Calendar Year 2015, the compnay is looking at increase in volumes, new capacity from the car distillation plant in Russia plus improvement in operating margins, which in turn will improve the overall performance said T Srinivasa Rao, CFO, Rain Industries in an interview to CNBC-TV18.

The margin improvement would be to the tune of 100-200 basis points, he added. The company follows Calendar Year and closes books in December.Below is the transcript of T Srinivasa Rao’s interview with CNBC-TV18's Reema Tendulkar and Ekta Batra.Reema: 80 percent of your earnings depend on the aluminium prices and the prices have risen to nearly 18 month high. So what can we expect in FY15, how much better can it be compared to FY14, any numbers?A: Actually we are not linked to the aluminium metal prices; we are linked to production of aluminium on a worldwide basis. 50 percent of our revenues comes from the aluminium industry and when the prices of aluminium is increasing over a period of time, the volume of production is also expected to increase. So in about six months to one year we expect that there will be improvement in our operating margins and there will be improvement in our volumes by about 8 to 10 percent.Ekta: 8-10 percent for FY15 entirely?A: Basically, we follow calendar year for our financial reporting. We close the books in December.Currently, we are closing the books for December 2014 and next year will be December 2015. From mid of 2015, we will see both increase in the volumes as well as increase in the operating margins. Apart from that we are doing a major expansion in our one of the coal tar distillation plant in Russia and that plant is expected to be operational in mid of 2015.So in 2015 calendar year we have increase in volumes, new capacity coming on line and improvement in the operating margin. So, all the three factors will help us to improve the performance on overall basis.Ekta: So you did margins of around 12 percent in the quarter gone by if I am not mistaken and that was down 200 basis points on a year-on-year (Y-O-Y) basis. So what is your expectation in terms of the margin run rate considering that you expect improvement in that?A: We are expecting an improvement of at least 100-200 basis points in the operating margin in the calendar year 2015 due to the factors explained earlier.

Reema: This 8 to 10 percent volume growth is what you expect in calendar year 2014?A: In Calendar year 2015.Reema: You also spoke about the capacity going up. Can you tell us where it currently stands at and how much will it go up by?A: We have coal tar pitch distillation in Germany, Canada and Belgium. We are doing a 300,000 tonnes capacity expansion in Russia and that plant will be operational mid of 2015. The full benefit of that expansion will accrue to us in the calendar year 2016. Currently our plant in Belgium, Germany and Canada are operating around 80 percent utilisation. Maybe a 5-10 percent growth can be expected from those plants. But the real expansion growth will happen when the Russian plant will be operational in mid of 2015.Ekta: What do your debt levels stand at, because if I look at your finance costs in the previous quarter they have risen to Rs 148 crore versus Rs 140 crore Y-O-Y. What is the debt level on the book currently? We are also we seeing an incremental rise maybe because of you capital expenditure (capex) plans?A: No, substantial part of the capex will be done out of the existing cash reserves. We have about USD 200 million of cash available between all our operating companies in India, US and Europe. So whatever capex we expected to incur in the next six months to one year will be incurred out of our existing cash flows, existing cash balances. So there will not be any increase in the debt going forward.Reema: So if you have cash reserve of USD 200 million why would you have debt, why not use the cash to repay your debt and also if you could tell us what the quantum of debt is?A: About USD 80 million to USD 100 million of debt is in the form of bank loan which can be paid but substantial part of the debt is in the form of high yield bonds which are in the nature of non-convertible debentures. They cannot be prepaid as and when the company has the cash and we are maintaining USD 200 million cash both for the working capital purpose as well as for meeting the capex projects. As well as for maintaining a contingency reserve for any cash requirements in our business.