Thane plant labour issue over but see Q1 margin hit: Technocraft

The 90-day long labour issues at Technocraft Industries' Thane plant has finally been resolved said the managing director Sharad Saraf in an interview to CNBC-TV18. The Thane plant is a coal based, 15 mega watt thermal captive power plant, he added. Saraf expects the scaffolding business to do well in FY17 as well.The company eyes expansion and increase production by 30 percent in its scaffolding business in FY17, he said. He maintained that the operating margins in first quarter of FY17 may see a slight impact due to Thane power plant shutdown.Below is the verbatim transcript of Sharad Saraf’s interview with Mangalam Maloo & Reema Tendulkar on CNBC-TV18. Reema: Could you tell us for how long you had these labour issues at your Thane plant? A: We had a labour issue in our power plant which is a very small issue and it is a small operation. That has been resolved and the power plant is now working fine. We had some outside elements who are creating some nuisance but that has been sorted out. Mangalam: This is your captive power plant, right? A: It is our captive power plant, it is 15 megawatt coal based thermal power plant. Mangalam: How much of your power requirement did this fulfil? A: All 100 percent, it was fulfilling 100 percent then we had to use Maharashtra State Electricity Distribution (MSEB) to some extent for our requirements which was fine. Mangalam: What was the price difference between MSEB and your captive power generation? A: There is a small difference, naturally because captive power plant will be cheaper than the MSEB. Reema: For how many days did you face this power issue? A: We had about 90 days. We had again informed exchange BSE that it has again started working. Reema: That is basically one full quarter. The months of April, May and June you are saying is impacted? A: One quarter was fully affected. Reema: Should we expect that the margins of the company in this particular quarter will be impacted because you have had to purchase power at a higher cost? A: In that last quarter, yes, little bit. However, we had substantial growth in the last quarter in our other operating areas so this was not a big issue. In any case our power requirement overall of the company is not, so significant to affect our profitability. Of course it does but it is not a significant impact. Mangalam: Could you tell us what kind of growth we can expect in your scaffolding business at the same time what are the margins we can expect because last year we saw a sharp uptake in your scaffolding margins and secondly your yarn division that one turned around last year. What is the outlook for this one? A: One let us take one by one. Scaffolding division we expect great year this year as well. We expect a good growth rate both in topline and bottom line. We have done very well in last year and this is because we have got all the approvals, all the sanctions, all the licences that are required from Europe and USA. It took us almost seven-eight years to do that but now we are on, so we are fully booked, we are looking for expansions. We are looking for adding about 30 percent additional production. Reema: So, looking to increase production by 30 percent in the scaffolding business? A: Correct. Reema: Could you give us the sense of what FY17 will look like because for the last two years your consolidated revenues have come down? FY14 revenues were at Rs 1,045 crore that came down to Rs 1,029 crore in FY15 which further slipped to Rs 921 crore last year? A: You see the bottomline. Reema: That is the there, we were just trying to get a sense of what the company’s topline will look like in FY17? A: Topline depends very much on the steel pricing. Steel prices that taken a nosedive and accordingly the price of the product also had to fall. Mangalam: In that case could you tell us what the volume growth in last year was and what can we expect in the next year? A: Volume growth was quite significant, it was almost 18-19 percent and we expect similar growth in this year as well. Mangalam: How will you fund the new project? Is it going to be internal accruals? A: It is internal accruals, the additional 30 percent that we are talking of will be internal accruals. Reema: What is the total CAPEX? A: From the internal accruals the CAPEX will be above Rs 10-12 crore because basically what we are doing is debottlenecking. Mangalam: If we look at your balance sheet you have cash of as much as Rs 66 crore. You have current investments of almost Rs 147 crore so you are sitting on a fairly decent amount of liquidity. Any acquisition plans going forward or would you like to return this money back to the investors in the form of some dividends or something? A: Last year we returned Rs 141 crore to investors through buyback. So, that was one big large chunk that was returned back to the investors over and above we also declared dividend, so the shareholders were compensated fairly well. Now this year we do have significant plans. We are trying to go for a defence based unit for supply to defence. There the CAPEX is almost Rs 20 crore of CAPEX and then there will be working capital requirement as well. So, that is one greenfield area that we are looking at the moment which appears to be quite promising and we have already done some lot of work on it. In the textile division which has been not doing too well we have injected almost Rs 40 crore in upgrading both our garments side where we have added about Rs 20 crore and we added about Rs 30 crore in yarn mill. So, almost about Rs 50 crore we have added in last three to four months, so about Rs 50 crore of CAPEX we have done. So, inhouse CAPEX has been done. Then in the drum closures division we are adding another 50,000 square feet of building and a substantial CAPEX will be there as well likely to be about Rs 20 crore. We have all these inhouse CAPEX where our own internal funding will be used. Even the defence project that we are doing most likely we will use our own funding.