Don‘t expect significant improvement in FY17 margins: Atul

In an interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy, Gopi Kannan, CFO of Atul Ltd, spoke about Q2 earnings and the road ahead for the company.Below is the transcript of Gopi Kannan’s interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: The income growth has been quite good. 8 percent higher for income growth, but the profits are down almost 4.5 percent. Take us through what went through in the quarter and what is the forecast for the next couple of quarters?A: The performance in Q2 was actually much better than what the numbers reveal. In Q2, compared to a year ago, basically, Q2 sales increased from Rs 631 crore to Rs 685 crore. A growth of 9 percent. However actually, we have sold 15 percent higher volumes including 18 percent higher exports. However, the trend in the industry is that the input cost is going down and the selling price is also going down. So, the topline shows only a growth of 8 percent. However, actually we have grown 15 percent including an export growth of 18 percent and this kind of volume growth is also coming because of the projects that we have capitalised in this one year period of close to Rs 500 crore.Latha: That explains your margin increase as well as your earnings before interest, depreciation and amortisation (EBITDA) increase, the fact that the raw material prices are going down, but why is the net profit down?A: I was just about to come to that. At the profit before tax (PBT) level, if you look at line seven of the results, basically which is the true measure of what is your profitability from operations before tax, but after interest. That has grown from Rs 120 crore to Rs 126 crore, a growth of Rs 6 crore actually. However, if you see, the depreciation has gone up by Rs 7 crore and this is because of the capitalisation of Rs 475 crore to be precise which we had done in the last one year. But the corresponding projects have not reached full capacity. Therefore, there is a higher charge of Rs 7 crore depreciation and corresponding to that, this is not a matching revenue, that is one reason. Secondly, last year, what happened was during Q2, the dollar increased as opposed to the rupee during the quarter with the result that at the end of the reporting period, we gained Rs 4 crore which in this Q2 it is the opposite. Actually we have lost Rs 1 between the opening and closing rate.Latha: Can you give us a guidance, if you have commercially taken in your expansion and that is why the depreciation, should we expect better utilisation? What is the full year revenue and what is the FY18 revenue forecast?A: It is difficult to put a precise number, but I can tell you that in Q1 we grew 17 percent in terms of volume. On top of that, we have grown 15 percent in Q2 as well. Now I would expect that during the year a growth in volume terms will definitely be around 15 percent. Now in value terms, we are at 8 percent as you said, but we have always maintained a growth rate of between 10 and 15 percent if you see in the last one decade.Sonia: What about your margin performance? Do you think you can do better than 19-20 percent that you have done so far?A: I do not think we can significantly improve on margins. That is my feeling at this stage. But if you notice, in the last one year, we have maintained our EBITDA margins. Yes, there is a decrease in input costs, there is a decrease in selling price, margins have been maintained and particularly, when a project is up and we have to sell more volumes, we have to chase the volumes more.Latha: Why is it that some of the material costs are actually up? Cost of materials is actually showing 2.3 percent higher. Power and fuel costs is showing 25 percent higher.A: If you see the format of the results, you will have to add the three lines to get a fair picture. First represents only the raw materials and the next two lines reflect the traded materials bought as well as the change in your inventory. Now, if you do this calculations you will notice that in both the periods, the raw material consumption is around 49.8, close to 50 percent. That has not changed.