See margins at 5-7% for FY13: Thirumalai Chemicals

Thirumalai Chemicals reported an impressive performance in Q1FY13. Its net sales in first quarter rose 109.7% to stand at Rs. 298.8 crore against Rs 142.54 crore on year-on-year basis. Margins too improved from 9.5% to 14% in Q1.

R Parthasarathy, managing director, Thirumalai Chemicals told CNBC-TV18 that the commodity chemicals business is cyclical and volatile, but he is hopeful of boosting volumes going ahead. "We have improved our costs and costs are very important in a commodity chemical business." However, he pointed that maintaining margins in double digit would be difficult going ahead.  "We will try for respectable margins. Margin in double digit is not common in the commodity chemical business. It will be more like 5-6-7%, around 5-8% is more reasonable." Below is the edited transcript of Parthasarathy’s interview with CNBC-TV18. Q: This is quite an eye-popping performance in terms of doubling your sales as well improving your margins considerably from 9.5% to 14%. That’s a sizeable improvement in both margins and volume. Can you take us through what went so right in the first quarter? A: What went right is the work that we had put in over the last one year and the various changes that we made internally in terms of efficiency improvement, cost cutting programs and responsiveness to market in reorganizing the company and training. All these things finally worked out well. I must confess that the market also looked up; sizes looked up during the tail end of last year and the first three or four months of the first quarter. So, it is a combination of these environment factors and the results of the work that we had been putting. Q: There was no capital expansion, no expansion of capacity that contributed? A: No, not at all. There was no expansion of capacity. Q: This is a maintainable performance you would say? You would be able to dish out Rs 300 crore in sales? A: Ours is a commodity chemicals business which is about 80%. 75% of our business is very cyclical and it is definitely volatile. Prices go up and price come down like all other commodities. We were at peak during the last five months, prices have started coming down. Our effort is not just to look at prices or the top-line, but it has been to protect our margins and improve them. I would say reproducing these results quarter after quarter is not the way we run our business. We try to run it over a medium term. Over the medium term we will do well, but I do not think one quarter can be taken to represent a whole year. _PAGEBREAK_ Q: Would you have any sort of capex plans going forward at all? A: No, not this year. We do not have any capex plans going forward this year. Q: Just give us a sense in terms of total capacity utilization of your plans this quarter? What sort of utilization levels did you garner? A: This quarter in Q1 on a sales basis we were probably close to about 80-85%. We are trying to push it up. Q: Who exactly would your clients be? A: Our clients would be all the paint companies, PVC compounding and cable companies. It would be a lot of the colorants companies who make blue figments across India for the export markets especially in Western India and the fiberglass reinforced polyester. Q: You wouldn’t see any slackening of demand from any of these sectors at this point in time? A: No. We are connected very much to GDP and GDP growth is I won’t say it’s flattening or anything, but it is duller than we expected. We expect to improve our volumes, because we have improved our costs and costs are very important in a commodity chemical business. Q: So you will be able to hold the margins at 13.5-14%? A: These are margins that come once in a while. We will try for respectable margins. But it is very difficult to predict what the margin is going to be quarter-after-quarter. Q: Would it be double digit? Would it be well above the single digit that you did last quarter? A: No, margin in double digit is not common in the commodity chemical business. It will be more like 5-6-7%, around 5-8% is more reasonable. Q: Would you be able to give an average for the year? I understand quarterly would be tough? A: I am talking about the average for the year. Q: You would be able to do a high single digit you think? A: Yes. It would be 5-7% that would be more normal.