Expect margins to improve over next 6 months: BILT

Ballarpur Industries has declared its second quarter results. The company's Q2 consolidated net sales were up at Rs 1,126.9 crore versus Rs 1,019.4 crore, quarter-on-quarter, QoQ. Its consolidated net profit was up at Rs 48 crore versus Rs 41 crore, QoQ.

In an interview with CNBC-TV18, R R Vederah, MD, BILT, spoke about the results and his outlook for the company. Below is a verbatim transcript of his exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: Your margins have come off in the current quarter, can you take us through what kind of cost pressures you are witnessing because your profit after tax (PAT) growth has not kept in sync with your top-line growth? A: Yes, but we have been explaining to the market that we had invested very heavily to increase our paper capacity and the pulp mills, which would correct the cost structure, are currently being implemented. So, as a result, the top-line growth has been achieved, we have addressed the growth in the market with a greater market share. But on the other hand most of this capacity has come with bought out fibre. Now, bought out fibre means the value add is less because we buy pulp from international market to convert into paper. We would now correct this with the two pulp mills coming on line. One is in Malaysia, which would be commissioned in July. One in Ballarpur where we are going through large extensive modernisation and capacity programme and that would come in the first quarter of next year. Our margins will bounce back to the levels of 25-26%. Q: So, you are saying by the Q1 of FY12 your margins will be at 25%? A: No, please understand that these are large capacities which get ramped up, but our margins which start improving because the cost would go considerably lower than what it is today with respect to the non-integration the company is going through because of buying pulp from the market. But eventually once the pulp mills are fully ramped up, our margins would go back to our historical levels. Q: What do you see them moving up to in this quarter? A: We are at about 19%, what we have shown. We expect an improvement over the next six months because we see that pulp prices which were high for these last six months would come down. We have contracted in advance now, pulp at competitive prices and also we expect some improvement on the paper prices front. So, I expect at least a percent improvement in the margins for the next quarter. Q: Your interest costs have also gone up in the current quarter, by how much can you scale back debt over FY12 because that was also connected with Netherland subsidiary listing where you could raise some cash and probably clean up your balance sheet a bit? A: No, please appreciate that we have capitalised in December this year a very large capacity at Ballarpur where we have bought in about in Rs 650 crore investments. So, these are not two comparable issues. So, this Rs 650 crore of investment has been capitalised. To that extent, our debt has gone up and reflected in depreciation as also the interest. Q: Are you on course to do that subsidiary listing on the LSE in April? A: Yes, we are on course; the entire process is on track. Q: The subsidiary holds 16% stake in Lavasa, would you want to go IPO before any final resolution is found to the Lavasa project? A: There is no relationship with the subsidiary; we are listing in April. Q: I am talking about Avantha Power? A: There is no relationship between the two.