See 25-30% EBITDA, profit growth in FY14: McLeod Russel

McLeod Russel aims to achieve 25-30 percent growth in profitability and earnings before interest, taxes, depreciation, and amortization (EBITDA) in FY14.

Speaking to CNBC-TV18 about the financial performance of the company, CEO Kamal Baheti said, hike in tea prices in Q4 by Rs 25-26 per kg and higher production helped them to reduce overall losses. He further assured that losses seen in Q1 or Q4 would not affect the overall profitability of the company going forward. For the current year, since the weather is expected to be favourable, the company is looking at recovering last year's 10 percent loss on crop production, which would have a positive impact on their costs and profits. Also read: Stable growth far cry, but FIIs will favour India: Nomura Below is the verbatim transcript of his interview on CNBC-TV18 Q: Disappointing quarter for you guys. Could you just walk us through what the experience was in terms of tea prices and whether you expect these EBITDA level losses to spill into the next year as well? A: No, this has nothing to do with the prices etc. The last quarter for tea plantation company in northeast will always have losses because there is no production for three months. So in that context it is in line. The prices during the quarter had been Rs 25-26 higher as compared to last year and the production which we started only in the middle of the March was slightly higher than what it was there last year and that brought down the overall losses for the quarter little over than what it had been their last year. Therefore, this first quarter or last quarter loss has nothing to do with the overall profitability for the year going forward. Q: How is FY14 shaping up? Prices are up, but production levels have come down. Given that what kind of performance do you expect to turn this year? A: Last year was a tough year. Even if the prices went up by Rs 21-22, we lost a lot of crop last year. The price increase did take care of the cost increase, but the overall margins remain flat on the rupee per kg tonnes. For current year the weather looks very good and we hope that we will be able to recover the crop of around 10 percent loss which we had last year and that should itself have a very positive impact, both on the cost as well as on the profitability. We are also expecting little stronger prices than what it had been there last year. So, we expect overall increase of around 25-30 percent both at the EBITDA levels as well as the net profit levels, of course depending on the weather remaining good throughout the year 2013-14 and recover the crop which we lost last year. Q: What looks like a reasonable production target for FY14? A: Last year consolidated production was 102 million kilograms. However, for this year we have got our business plan of making 114-115 million kilograms. Prices, too which were around Rs 172 for Indian market are expected to be around Rs 180. The cost which was higher last year we expect at least Rs 4-5 decrease in cost per kilograms on recovery of crop. So, on all three parameters 2013-14 looks much better than what it has been in 2012-13. Q: What is the experience and observation coming through from Kenya in terms of both prices and how you think production will move over there? A: In last couple of years 2011, 2012 we lost a lot of crop in first quarter in Kenya. However, 2013 has been very good from the production point of view. Prices which started around 40-50 cents higher, actually come-off a lot in last couple of months, but again from last two weeks the prices are inching up gradually. We expect overall production in Kenya to be normal. It will be 30-40 million kilograms higher than last year, but the prices should inch up by another 5-10 cents per kilogram. So, it will be a similar kind of an experience in Kenya, as well as in India that is a much normal or better production than last year, stable prices or little increase in prices, moderate increase in cost or maybe a decrease in cost at times. Therefore similar situation is happening not only in India, but across the globe in tea plantation areas.