Insecticides India is betting big on opportunities from off-patent molecules and is targeting gross sales of around Rs 2,000 crore by FY18. Speaking to CNBC-TV18, CFO Sandeep Aggarwal said positive cash flows are expected in coming years.
The management expects revenues of Rs 75-80 crore from Hakama and Pulsar by the end of FY15. Also, the revenues from the same facility will double by FY16 end (from Rs 48 crore in FY14), added Aggarwal.
SBI Capital Markets is bullish on Insecticides India stock and recommends buying with a target price of Rs 1,031 per share. The stock is currently trading around Rs 870 per share. Below is verbatim transcript of the interview:
Q: We understand from some meetings that you had with analyst earlier that next big opportunity for you is the off-patent molecules. How much are you targeting by way of sales from this segment?
A: We had just launched one off-patented product called Diafenthiuron and during this year this product alone will contribute around Rs 75 crore for both B2B and B2C business. We are going to launch one more product called Imazethapyr in the month of January.
Q: Is it true that the company has targeted doubling its sales in the next four years. I was reading somewhere that you are looking to have gross sales of Rs 2,000 crore by FY18?
A: Yes, we are targeting those sales targets.
Q: With gross sales being at Rs 2,000 crore by FY18 what will margins look like because the company has been improving the margins as well?
A: We are expecting earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of around 15 percent by FY18 from the current 10 percent.
Q: What about your Nissan specialty products? What is your revenue target for this year?
A: We had two products with Nissan, one is Hakama and the other one is Pulsor. Though due to failure of monsoon Hakama has not done very good this year, still we are hoping around Rs 60-65 crore turnover from these two products. Going forward, we can multiply our sales with these two products. Further we are working on two-three more products with Nissan which may come in next two or three years.
Q: I was just looking at your Q2 numbers, your other expenditure has also expanded and provisions for doubtful debt has gone up. Where does it currently stand at?
A: No, there is no doubtful debt on those figures because this year the monsoon was not a big hit and so, we had provided for two-three percent extra. Credit notes can be given at the end of the financial year when we will settle the account so we had taken just three percent extra provisioning nothing else.
Q: Will that be reverse now?
A: It may or may not be possible because at the end of the year when we will finalise the accounts only then the exact figures will come. We have to take the provision though season was not good so we had taken some extra caution in the second quarter.Q: Up to FY14 you all had undertaken a massive capex program. Are your capex requirements now complete or could we see further capex in FY15 or FY16?
A: It is almost complete just Rs 15-20 crore maintenance capex will be required nothing more than that.
Q: What is the cash generation for the company per quarter?
A: We were in expansion mode since last two-three years and so, positive cash flow will come from next year onwards.
Q: All your capital expansion plans are over and the company can use the cash generation to reduce debt, what is the expected cash generation in FY16?
A: In FY16 we are expecting not to increase our working capital limit any further from this level. The term loans that are around Rs 70 crore now will be over in next three years.
Q: For your Dahej unit can you tell us what is your current utilisation level and how much can we see them being scaled up by FY16?
A: At present we are utilising around 75 percent capacity from Dahej and from the next year we are targeting to achieve by around 95 percent.
Q: The expectation of the analyst community is that return on capital expense (ROCE) will also go up. By how much are you looking to improve your ROCE?
A: When the earnings EBITDA will improve definitely all the ratios will improve. So, we are hoping that from the current 13-14 percent it will increase to 16-17 percent over the next two-three years.
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