To reach 100% utilisation in FY12: JHS Svendgaard Labs

JHS Svendgaard Laboratories has reported a sales turnover of Rs 22.30 crore and a net profit of Rs 1.51 crore for the quarter ended Dec '10.

For the quarter ended Dec 2009 the sales turnover was Rs 14.87 crore and net profit was Rs 1.32 crore. In an interview with CNBC-TV18, Nikhil Nanda, MD, JHS Svendgaard, speaks about the results and gives his outlook going forward. Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. Also watch the accompanying video. Q: The sales are Rs 31 crore up about 90%, operating profit margin (OPM) improvement of 4% at this point, what has led to that? A: Basically this has led to better efficiencies in terms of management of the capacities. We had put up huge capacities way back in 2008, they were not being fully utilised. We are getting better utilisation of the capacities in the current scenario. We expect the growth momentum to remain in there. Even the new plants, which are coming up, are seeing a much faster ramp up than what we had initially planned or budgeted for. I think we have a very good going on the FMCG side, as far as the Indian market conditions are concerned. Q: What was your average capacity utilisation in Q2 and what did it rise to in Q3? A: We have been consistently moving up form somewhere like about 50% to 75% to 80% of the capacity utilisation over the year, when I say over the year meaning, starting last year to the current year. Q: You last time told us that you have orders enough to reach 100% utilisation, by when do you think you will reach, will it be in FY12? A: I think it will be safe to say that. Q: Therefore, what kind of revenue growth you forecast for the current year, more importantly for FY12, when you will be utilising capacity? A: In our case since the three units are getting merged and we will have the consolidated results at the end of the financial year. We have three plants primarily which makes toothbrushes, detergents and toothpaste and mouthwash, so we will have one of the units reaching or seeing close to 100% capacity utilisation. One of the units hitting a reasonable 70-80% capacity utilisation and the third one would also be starting up. So, we will see a substantial capacity utilisation of a reasonable percentage 30-40% at least to begin with in the next year. So, on a consolidated basis, the overall capacity utilisation for all across the plants on an average would be close to 65-70%. Q: You have board approval to raise some money through GDR, ADR, what is the plan there, are you looking at some inorganic growth? A: No, how it happens is that till last year, when the Sunset Clause for the tax units came in on March 31 in 2010, the units were not allowed for expansion. But in 2011 January, which is last month, the Ministry Of Finance has issued a clarification which says that the units which are already working in that area before March 31, 2010 can take up expansion in the products that they are manufacturing, which practically means from today we have nine years and two months of tax benefit available for any capacity increase we do. On an average, it takes about a year to implement a project a one to one-and-a-half year. We still get eight years of clear time period for getting tax benefits even on the increased capacity. While most of our competitors including some of our principals to up their own plants, which have been set up way back in 2006, 2005 because the original Sunset Clause was not 2010 but 2007, so most of them came in 2005-06, they would finish their tax benefits by 2015. So, even if they take up an expansion today, they will also take a one to one-and-a-half year. So, they will be left with only two-an-a-half years to recover the cost that they have incurred in terms of tax benefits which may not be substantial, while in our case it is eight years. So, we want to move ahead and grow capacities. Fortunately, the land we have bought currently is all on the main road. So the land behind us is land locked, so that is available for us to undertake any kind of expansions that we or our customers want us to do.