Aim for better margins; 15% sales growth in FY14: Sintex

Sunil Kanojia, group president, Sintex Industries is aiming for a 100 basis points (bps) margin improvement in FY14. Kanojia's optimism  comes on the back of an acquisition made by the company in Germany.

Kanojia's guidance comes after the company surprised the street with the fourth quarter (January-March) consolidated net profit rising 71.6 percent year-on-year to Rs 151 crore, led by other income and tax reversal.

"This is because the kind of clientele that we have got from this acquisition. Some of the customers are very large customers and this has helped us get a footprint in Germany. So far, that was missing. Germany is the most industrialised nation in the European economic union and the company has a manufacturing base in Poland which is a low cost manufacturing base," adds Kanojia in an interview to CNBC-TV18.

Additionally, Kanojia is also aiming at 15 percent growth in the company's topline and eight-and-a-half to nine  percent growth in its bottomline.

Below is the edited transcript of Kanojia’s interview to CNBC-TV18.

Q: Can you tell us how the 15 percent sales growth breaks up amongst your various categories?

A: This will be on the similar lines as you see the result of FY13 where we showed phenomenal growth on prefab segment, custom molding India as well as custom molding overseas. These three segments are likely to grow. As far as monolithic is concerned, we will still keep a question mark till such time we get good signals coming from government in terms of the decision making, faster payments etc. So, we will keep that as flat. If one looks at the prefab growth this financial year, it has been 35 percent against our own guidance of 25 percent as well as the custom molding India and overseas all have grown. So, altogether we registered a growth of 15 percent and we can look forward to have similar growth going forward.

Q: Can you take us through your operational performance because there, there was some disappointment not just in the overall margin picture but even in the custom moldings business where you did margins of just 6 percent. When do you think your margins could recovery back to those 10 percent levels within the custom moldings business itself?

A: The prefab monolithic, has maintained its margins as has custom molding. They have maintained margins as per our expectation and the guidance that we generally give. The only drop had been in the textile business and the custom molding overseas. Both these businesses contributes about 30 percent of the sales so when we have a drop of about three percent or so in these margins, it drags the overall blended margins.

Also read: Glenmark says environment challenging, sees 20% growth in FY14

Now, the question is why have custom molding overseas margins gone down? One will notice that till today, European economy has been under depressed conditions and it hasn’t been doing well. Though the volumes have grown for the simple reason that when the situation is depressed, the product mix changes significantly and that changes your margins as well.

As soon as the European conditions will improve, one will expect to participate more in their development programs which have shrunk significantly and when one participates in the development programs, the your margins on those jobs are higher and one will get back to your 10-11 percent margins on the overseas business.

Q: For the first half of FY14, do you think your margins could improve to the 15 percent levels? Or do you see your overall margins remaining sticky in this 13-14 percent bracket?

A: Our aim is to improve margins at EBITDA level atleast by 100 bps going forward and 15 percent growth on top-line and may be eight and a half and nine percent on bottom-line. These are the kind of margins that we will look forward to. I am sure that our European business will improve because we did make an acquisition in Germany. Neif Plastic made an acquisition, so certain expenses have also gone into in terms of setting that up because it was a distressed sale. And considering we will have certain expenses going into Q1 and Q2 but eventually the company will contribute significantly to the business in the long-run. This is because the kind of clientele which we have got from this acquisition, some of the customers are very large customers and we got the footprint in Germany. So far, that was missing and it is the most industrialised nation in the European economic union and it has manufacturing base in Poland which is a low cost manufacturing base.

However we have to do a lot of job in these two units. It has a potential to deliver atleast USD 50-60 million on full potential basis, full strength basis. So, we are working towards that and there will be lot of synergies that will happen between Germany as well as France.

Q: You still seem in an extremely capital expenditure (Capex) intensive phase. You have incurred capex of nearly Rs 650 crore on a consolidated basis. Through the course of FY14 do you see the capex pressure easing off any along with the contribution from some of these acquisitions that you were just talking about?

A: The capex is in the range of Rs 448 crore out of which Rs 70 crore has been due to interest capitalisation. Otherwise, we have kept it within the guidance of Rs 180 crore. So, about Rs 270 crore which actually came up.

This particular capex of acquiring the companies and spending money on these two assets which we have just bought was not in the plan for this financial year but was likely to happen in the next financial year - FY14. But since it was under liquidation and the commissioner had certain dates to follow, so it got finalised within the last financial that is why the capex had gone up. I am sure that going forward in next year we should keep the limit of Rs 250 crore.

The volumes have expanded so to keep capacity addition in line with the volume expansion that is happening in prefab 35 percent or so, one will have certain capex. So, if sales growth comes up, the capex will go in-line. However, we will still remain conservative because our focus will always be on the free cash flow generation. This year we did about Rs 40 crore or so. If this particular capex of Rs 170 crore overseas had not come up, we would have met with our projections of about Rs 200 crore which we wanted to give as far as free cash flow was concerned.

We have brought down the debt equity ratio which is 0.86 now on net debt equity basis. So, there have been improvements on certain aspects but I do agree that this was a surprise in terms of Rs 170 crore coming in this financial year. Otherwise, we were very much in-line.