FY14 EBITDA margins seen at 15-16%: Amara Raja

In an interview to CNBC-TV18, Suresh Kalyan, CFO, Amara Raja Batteries said that the company is eyeing 15-16% EBITDA margins in FY14.

Amara Raja disappointed the street with its fourth quarter earnings of the fiscal year 2012-13. Its net profit stood at Rs 59.6 crore, way below CNBC-TV18 estimates of Rs 80 crore. Its operating profit margins (OPM) in Q4 slipped by 30 basis points at 13.9 percent versus 14.2 percent, year on year (Y-o-Y). However, Kalyan pointed out that the company is not facing any pressure on gross margins. Although we did not see big growth in volumes, the jump seen in topline for Q4 was on the back of almost 100% growth in trading revenues compared to Q3, he added. Kalyan is hopeful that the company would definitely see an increase in market share once the capacity expansion of the large VRLA and medium VRLA products kick-in by October. Also read:Like Exide than Amara Raja; shun USL, Hindalco says Rajen Shah Below is the verbatim transcript of his interview on CNBC-TV18 Q: Take us through your margins, which seem to have taken a bit of a dent this quarter. A: There is no pressure on gross margin; the margins need to be split between margins from trading activity and margins from manufacturing activity. We do trade in home Uninterrupted Power Supply (UPS) and inverter batteries because we don't make one by ourselves. Fourth quarter being the peak quarter for the inverter business, we did about Rs 102 crore of business vis-à-vis Rs 48 crore of that we did in Q3, on a sequential basis .We get about 5.5-6 percent margin on the trading and hence there is a distortion in the overall margin. If we removed the trading margin and looked at manufacturing margins in isolation, then they are at about 15.2 percent EBITDA, which is slightly lower than the sequential quarter of Q3, because the lead prices have shot up from Rs 2,000-2,200 in Q4. We had not taken the price correction in the beginning of the quarter. Although, we did take a price increase at the end of the quarter and hence there was a slight pressure on the margins. Q: So you are saying that the way to read this is that the quarter gone by was an aberration and you expect to bounce back to previous quarter margins going into the new financial year? A: Yes, our belief is that the Q1 will reflect the normal margin levels, because the lead pricing is softening a bit though there is an increase in the premium on the metal. But we believe the price increase we took in March could help us maintain the manufacturing margin of about 15.5-16 percent. _PAGEBREAK_ Q: What is it that you can say about volume growth though for both in the quarter you have closed up and what do you expect to do on volume growth trends? A: In Q4 we did not have big volume growth coming in because we are confined by capacities. We have grown in line with the market growth, but the big jump in the top-line, is because of the trading revenue which is higher by almost 100 percent compared to Q3. Q: What kind of realisations have you seen in this quarter in the UPS segment? A: The realisation per say in the industrial battery has been excellent during the year 2012-13. We have increased the prices in telecom as well as in the UPS to take care of the inflationary impact as well as to improve the margins. But we are definitely constrained by supplies in both the product lines. However we have taken the capacity expansion projects to increase the capacity in all product lines in which we have interest, which is large VRLA battery for telecom application, medium VRLA battery for UPS application. We have also increased capacities in automotive 4-wheeler and 2-wheeler. All these capacities would help us keep our growth momentum intact and we are expecting the supplies from these new capacities to come in from H2 of FY14. Q: There has been a lot of focus on market share for you and your closest competitor. So given the point you are making about capex, would you think the company should go back to increasing market share? A: Absolutely yes. But once the capacity kicks-in, in the large VRLA and medium VRLA product lines, which is likely to happen from October, we are likely to see a growth in excess of the market growth. We would go back to our normal levels of about 15-18 percent growth in the UPS as well as the telecom side. Q: What kind of margin and sales growth assumptions should your investors work with for FY14? A: We don’t want to give guidance, but I can only say that our EBITDA margins could pan out to be in the range of 15-16 percent for the next financial year. That is the best we could look at given the ground reality today.