Electrical biz may see double-digit growth in FY17: Orient Paper

Orient Paper and Industries may see a double digit growth in the revenues from its electrical consumer durables business in the current fiscal, according to its Managing Director, ML Pachisia. The company currently holds 18% share in the electrical business in the domestic market.The company also witnessed a bounce back in their paper business. This was due to reduction in costs and internal efficiencies and not due to decrease in price of raw materials, Pachisia told CNBC-TV18.Their margins in the last quarter of FY16 improved by 2 percent to 7 percent. When asked to give guidance on the margins for the first quarter of current fiscal, he did not disclose any numbers.Below is the verbatim transcript of ML Pachisia’s interview with CNBC-TV18\\'s Nigel D'Souza and Reema Tendulkar.Nigel: Numbers looked quite good. Could you give us a few details, what was your fans market share, could you tell us are you planning on increasing that market share and also what is the strategy that you are going to use there?A: As far as our electrical business is concerned fans being the predominant product our market share is about 18 percent of the country's market. In addition to that we have 62 percent of India's total export of fans. So, domestically 18 percent and export 62 percent.The other thing that has helped in this turnaround situation is the improvement in the paper business. The improvements have come mostly out of our internal improvement in efficiencies and reduction in costs. So, these are the two factors.For electrical business the last quarter is always the best quarter. Paper has been the real turnaround story this year. Not because prices or markets improve but mainly because of our internal cost reduction efforts.Reema: Your margins in paper were at five percent in Q3 and now you have improved them to seven percent already with an earnings before interest, taxes (EBIT) figure of Rs 10.8 crore. Do we expect more margin improvement on account of the internal efficiencies of the company in the paper business, what is the guidance on the paper business?A: Without being specific on numbers we are expecting substantial improvement in paper over and above what we have been able to achieve so far. Many of these actions affected part of these periods that we are reporting. So, next year we would see full impact of those actions and therefore we do expect improvement in the performance.Reema: So, double digit at least, paper margins in FY17?A: I cannot be committal of that. It will be a steady improvement.Nigel: But focussing again on your electrical business the revenues for the year they are at around Rs 1,200-1,300 crore approximately. For FY17 can we see an uptick from there and also could you help us out with the working capital days of the electrical division?A: Certainly we are looking at substantial increase both in the topline and bottom line of the electrical business.Nigel: For FY17?A: Yes.Nigel: What targets can we look at Rs 1,300 crore is what you have already done, so for next year can we say a 10 percent growth, what exactly the guidance you can give us?A: Well, it’s likely to be more than 10 percent. I cannot be specific, but it is likely to be more than 10 percent.Nigel: And the working capital days of the electrical division?A: Working capital is high at the moment relative to what we expect.Nigel: Could you give us some numbers?A: It’s about 60 days right now, but we would like to bring it down to at least 45 days.Reema: So working days should be down to 45 days in the electric consumer durables business. You are targeting more than a 10 percent growth in the consumer durables business and margins will continue to improve across the board. What about on the paper side what will be the revenue improvement that we should expect in FY17, will the growth be better than FY16?A: The top line is not likely to improve substantially in the paper business because we are running at full capacity. However, we are setting up an additional tissue paper machine of 25,000 tonnes, but that will be actually coming into commercial production only towards end of this year and therefore the increase in the top line for the paper business will actually achieved only next year, so the top line remaining more or less very close to what we have done this year. The bottom line should improve.Nigel: The street wants to know is there a demerger in the works. How soon can be about that and also could you give us a sense does the company have any land bank. Could you give us some numbers on that front as well?A: As far as your first question of demerger we have not taken any final decision and I cannot make any comment on that. We don’t want to comment on speculations in the market. As far as land bank is concerned, we do have some properties in different parts of the country, but many of them are strategic nature.Nigel: Can you give us some numbers what is the acreage exactly at least a rough estimate of your land bank?A: The biggest portion is that of the Brajarajnagar Paper where we used to have a paper mill earlier, which we shutdown in 1999. There we have about 800 acres of land for which we are looking at alternative usage. Other than that there are small parcels of land or buildings that we owned and the other important assets sitting on our books is the shareholding in Century Textiles and Hyderabad Industries, so these are the strengths of the company in the longer term.