The Sarigam unit of the company will be operating at about 60 percent capacity since it has not reached full capacity yet. Sabero Organics is targeting about 15 percent EBITDA going forward.
Kapil Mehan, Director, Sabero Organics Gujarat is rather pleased with the Gujarat Pollution Control Board (GPCB) revoking its closure order for three months. Had that not happened, production would have trumped to a standstill, he says. He is confident that the company would be able to meet all the requirements and the matter would be settled once and for all.
GPCB had in an earlier announcement dated November 18, 2013, ordered to close the operations at the company's Sarigam unit for alleged non-conformance of certain environmental norms.
The Sarigam unit of the company will be operating at about 60 percent capacity since it has not reached full capacity yet. The company hopes to continue to post good numbers going forward, just like it did in the second quarter. Sabero Organics is targeting about 15 percent EBITDA going forward.
Below is the verbatim transcript of Kapil Mehan's interview on CNBC-TV18
Q: Take us through how material this news is, the Gujarat Pollution Control Board (GPCB) revoking its closure order in terms of financials, how much would that have impacted if that order was not taken back?
A: If that order would not have been taken back, I think our production would have trumped to a standstill, till such time that we completed those requirements. This order was revoked after another inspection was done four-five days before their revocation and during that inspection, we had fixed all those non-compliances, which were observed in the earlier inspection in last week of October. There are some further modifications, which we need to do which will take maybe another couple of months. That is why this three-month period has been further given. So I think we are very confident that we will be able to put together all those things and this revocation will be removed forever. So this means that operations will continue uninterrupted and whatever Sabero had to do will continue to do that without interruption.
Q: Sarigam unit of the company was shut for 15 days or so, so in that period, could you tell us what the production as well as your financial impact was on account of the closure?
A: No, there was no closure. This was a 15 days time given to us because these are chemical units, they need time for closure also because you have to safely shut it down if you have to shut it down and that closure has been revoked. So there was no actual closure even in these 15 days.
Q: You also indicated that you have been given three more months to make certain modifications. So in that period is the unit going to be operating at full capacity or full production or in part?
A: It will be operating at about 60 percent capacity because we have not yet reached full capacity. So this will continue to produce most of the products at about 60-65 percent capacity and one of the units where if you recall we had one vessel breaking down so that product will not be there. That impacts our overall basis about 10 percent of the production.
Q: You had a very good Q2, sales going up 15 percent, profit going up 4 times, is that a trend which can continue and what would be your outlook for the full year?
A: I think we are very confident that trend will continue and unit is performing to its normal level and barring that one plant, which went down due to this one vessel breakdown, other than that I think the plant will continue to do well and we also have some third party sources from where we source certain raw materials and products. So whatever is the little shortfall, we are trying to make up that also. So, hopefully the performance will continue to be better than the previous years.
Q: The one plant where the vessel had gone down, when will that come on board? How much time does that take?
A: That I think will take about 6-8 months.
Q: The total impact of that is about 10 percent of your total production?
A: Yes, that is right.
Q: Coming back to your financials, margins improved quite a bit last quarter. It already stands at about 9 percent, can they go up further?
A: We are evaluating further investments in our utilities and things like that which will bring down the cost further because the gas price has become very expensive. The fuel cost has become very expensive. So we are currently evaluating the capital proposals to see whether we can use alternate fuels like coal etc to remove some of those high cost utilities. That will further bring down the cost and improve the marginal structure but that is still at the drawing board stage.
Q: In the near-term till you can structurally make the change and go in for other raw materials, where are margins likely to trend?
A: We are targeting about 15 percent EBITDA going forward and that is what we would seek to achieve in the near-term.