Expect operational performance to improve in Q4: Mercator

Despite posting a net loss of Rs 340 crore in the December quarter, Mercator Ltd is hoping operational performance to be better in Q4. The loss in the third quarter was due to the subsidiary in Singapore, reasons Prasad Patwardhan, CFO of the shipping company.

"Subsidiary in Singapore entered into early termination agreement in respect of two vessels and also it entered into the Memorandum of Agreement (MoA) to sell a very large ore carrier", he said in an interview to CNBC-TV18. Also read: Stocks in news: Tata Steel, Alok, PTC, Mercator, Wipro Below is the verbatim transcript of his interview to CNBC-TV18 Q: Numbers are poor for the quarter. Can you take us through what really went wrong and what are the exceptional items? A: There is a one-off exceptional item that has been charged to the profit and loss account in this quarter, our subsidiary in Singapore. Mercator Lines Singapore Limited have entered into an early termination agreement in respect of two vessels that were chartered in. These contracts were to originally run up to 2014 and 2015 and one up to 2020. We have made a provision for the early termination of these two contracts and a third onerous contract for one more vessel. The total one-time provision that we have made in our results for December quarter is about Rs 170 crore. Part of this compensation will be paid in cash and the balance about 40 percent or USD 12 million would be in the form of issuance of equity shares of our subsidiary in Singapore. So, this is the one-off charge that we have put into the P&L account. Our subsidiary in Singapore has also entered into a Memorandum of Agreement (MoA) to sell a very large ore carrier. As a result of this the vessel has been moved from our fixed asset block. It is going to be treated as an asset held for sell. The resultant loss of about Rs 64 crore has also been accounted for in this quarter. This is the main reason because of these two exceptional items amounting to about Rs 230 crore there is a large loss in this quarter. Q: There appears to be pressure even at the margin level. They are significantly lower falling from 15.5 percent to 8.1 percent. What would have led to that? A: The margins are lower on account of two things. One is in respect of our bulk carriers which have been deployed on spot basis, the rates have declined significantly. They are down by nearly 50 percent as compared to the previous period. Secondly, in terms of our coal operations we have seen some corrections in the prices of coal. The global prices have corrected and that has resulted in some decline in the margins. However, as far as coal operations are concerned we are seeing some volume growth coming up from November-December onwards. They are expected to pick up and the prices are also seemed to be firming up a bit. Q: If you expect a bit of a pick up what could we expect with respect to Q4? How much could be the kind of improvement that we have seen compared to the numbers reported in the quarter gone by? A: If you leave out the exceptional item actually we have reported a profit of Rs 25 crore during the quarter for the nine month period. Going forward Q4 onwards we see a similar top-line. However, the operational performance will be better because these one-off charges to the P&L account will not be there going forward. As far as the tanker charter rates are concerned we are seeing some improvement. Coal margins, coal volumes and prices seem to be improving. So, we hope to do better in the next quarter. Q: Where does your current order book stand at? A: It would be difficult to mention the current order book. As far as our dredging operations are concerned our order book today is in the range of Rs 250-300 crore. We are doing one Engineering, Procurement and Construction (EPC) contract for Oil and Natural Gas Corporation (ONGC). The value of that order when it was awarded to us was about USD 155-160 million. About a third of that order has been executed, so the remaining nearly Rs 500-600 crore is yet to be executed. Q: What is the current debt on your books? A: On a standalone basis our net debt is about Rs 980 crore. On a consolidated basis the net debt is about Rs 3,500 crore. We expect the debt to go down further by March 2013.