FY14 operating margins seen at 13%: Sona Koyo

Automobile component maker Sona Koyo Steering Systems expects its operating margins to improve to 13 percent in 2013-14 from more than 11 percent in previous financial year on the back of new product launches. 

“We are hoping that the market will at least most certainly not decline but improve slightly and fortunately we have got some new launches during this year,” Chairman and Managing Director Surinder Kapur told CNBC-TV18.
The company hopes to grow at around 8 percent in current financial year.  Sona Koyo reported a 6.8 percent on year decline in January-March net sale at Rs 398 crore and its net profit fell 29 percent to Rs 13.5 crore.
“We had planned for a 10 percent growth in revenue which unfortunately didn’t come about because of market conditions. This year we hope to get at least 7-8 percent improvement in topline,” Kapur said. Must read: Domestic car sales down 10.43%, bikes dip 2.06% in April Below is the verbatim transcript of his interview Q: If you could just take us through the numbers, there seems to be a miss on the tolpline and that is trickling down to the bottomline as well?
A: As everybody knows the automotive market has been very difficult this last year and continues to be. We have had a quarter-on-quarter (QoQ) improvement from Q3 to Q4 of almost 10 percent which is very encouraging which shows that maybe the market has bottomed out and it should improve.
Your comment on margins is not really correct because in the last quarter our margin has been 13.28 percent at the EBITDA level and therefore for the whole year while our sales are almost flat our margins will improve slightly from 10.9 percent to 11.4 percent.
However, the profit after tax (PAT) declined from 3.4 percent to 2.75 percent that is primarily because we have our depreciation much higher because we had made investments which we were to utilise this year. We had planned for a 10 percent growth in revenue which unfortunately didn’t come about because of market conditions. Again we are planning that this year we hope to get at least 7-8 percent improvement in topline.
The good news is we don’t have to now invest in capacity for the next couple of years because we have got sufficient capacity to take us to the level when India is producing close to 4.5-5 billion vehicles, we have got enough capacity to take care of ourselves. Q: You said on a full year perspective margins have improved. So, do you expect the improvement to continue going ahead into fiscal 2014 as well considering that the commentary from the auto industry hasn’t been positive?
A: We are hoping that the market will at least most certainly not decline but improve slightly and fortunately we have got some new launches during this year. As you know the market is now really based on new launches. The companies which have a lot of new launches will continue to do well. So, we believe that we will grow by about 8 percent this year and our Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins should be closer to 13 percent compared to 11 percent this year. So, we are going to see improvement.
Q: Your employee costs that have actually picked up around 25 percent on year on year basis but your finance costs that have come down, what exactly is the figure right now and what is your total debt and debt equity ratio?
A: On the finance side our costs have come down because of mix of borrowings that we are doing and the interest rates have softened. Our debt equity currently is about 1.2 is to1 (1.2:1) and while we are not doing capex for capacity we are spending money on relocating our Gurgaon facility to Dharuhera facility which will require capital expenditure in building and some infrastructure equipment. Therefore it will go up a little bit. On employee front the costs marginally have gone up in this region and we don’t want to face problems with regards to contract employees that we have and we do keep upping them as time goes by. Once our revenue goes up this percentage will come down.