Looking at inorganic acquisition in India: Eveready Inds

In an interview with CNBC-TV18, Deepak Khaitan, Executive Vice Chairman, Eveready Industries, spoke about the results and his outlook for the company.

Below is a verbatim transcript of his interview with CNBCTV18's Reema Tendulkar and Ekta Batra. Also watch the accompanying video. Q: Could you explain the sharp decline that you have seen at the profit level and even in terms of the margins? A: The profit of the company in this quarter has dropped basically due to the raw material price increase, which has been very sharp in this quarter. We have already corrected the situation by taking price increase in December, but the effect of that is only going to come in this quarter. Seeing the trend going up worldwide, we are reviewing our price strategy once again. But I do feel that it will require another price increase, effective 1st of April. This is due to the Zinc prices going up and even the other raw materials and other chemicals which are basically imported from China there also the price increase has taken place. Q: Even your sales have been absolutely flat. Earlier when we had spoken to you at the end of Q2, you guided for a 10% revenue growth for the entire year. To meet that you would still have to do about Rs 325 crore in Q4, is that doable or there is some decline that we might see even in terms of your revenue guidance for the entire year? A: No, we are now looking at a flat 2011-2012. The main reason for this has been our CFL business in which we are new entrants. We have been having a lot of problems with UP, Bihar on warranty claims where the warranties are as high as 20-25%. We have withdrawn our products from that area because with those sort of warranties we have started losing money. We are the first company in the industry which is now supplying products in that area at zero warranty. Therefore, naturally the sales have fallen down. Good news going forward is that now the whole industry is looking at this warranty aspect. Hopefully, by this quarter this warranty issue will be resolved and companies will stop giving warranty. Just to give you an example the warranties and Bihar and UP are as high as 25% for our products, whereas in Chennai and Bangalore they are as low as 1%. This is happening due to the very bad power supply situation in both these states. You all must realise that UP and Bihar are corner stones of our battery business, of our distribution and our turnover. Therefore we have unfortunately withdrawn from that. But I think starting next financial year, once the warranty issues are resolved, we will get back into the market and see the growth. Q: You spoke about taking another price hike in April, would you then consider the entire absorption of raw material cost increase to be factored in then? A: It has become a speculation of what the prices are going to be, but as of now we will take a hedge guess and take up the prices. But I am quite sure that we will try to recover whatever prices are increasing. As you know it is increasing on a very rapid pace. So, we will have to take a price increase. When we say a increase on 1st April, actual price increase into the companies coffers come as late as June. It