Expect 15% growth and 200 bps margin gain in FY17: Carborundum

Carborundum Universal saw margin expansion and reported good set of numbers for the fourth quarter of FY16.

Revenue gained 12 percent to Rs 535.1 year-on-year (YoY) and EBITDA margins grew 150 basis points (bps) to 17.4 percent (YoY).

In an interview with CNBC-TV18, K Srinivasan, MD of Carborundum said that he expects 15 percent growth in domestic business this fiscal and sees further margin improvement of around 200 bps.Below is the verbatim transcript of K Srinivasan's interview with Reema Tendulkar and Mangalam Maloo on CNBC-TV18.Mangalam: The highlight of the quarter was the fact that your margins improved by about 150 basis points. Is that sustainable, what kind of margins you are expecting going forward in FY17 as well?A: The margin increase is not only sustainable but it will improve. We have been going through the restructuring and relocating of our plants out of South Africa, which is completed. Our winding down of China is being done as well. So consequently the drag were all been taken of and consequently you see margins improving quarter-on-quarter (Q-o-Q).We had a top line growth of 11 percent on a standalone and about 2 percent on consolidated largely because of the translation of the Russian business into Indian rupee, but on the profit side operating profit was at 48 percent growth over the corresponding period last year both on standalone and consolidated basis. So the performance is getting better and it will get better Q-o-Q.Reema: Can you help us with what could be the extent of margin improvement in FY17?A: We expect this trend to continue. So we expect at least another 2 percent improvement in margins.Mangalam: Could you also give us a sense of what your order book is and who your key customers are?A: Ours is largely an industrial consumable and industrial durable, so we don’t to have very large order books. We have regular supply that go out to the trade and to the customers. The project orders are still not happening as far as India is concerned, but the general distribution, sales to our main customers continue to be very strong.Reema: Do we expect a revenue acceleration also in FY17 or do you believe it will be in the range of 11-12 percent that we have seen in this quarter?A: We expect revenue growths to improve as the new plants are getting commissioned in India and that will add to the growth in sales.Reema: What could be the sales growths in FY17 and how much of it will be on account of the addition to capacity in your plants in India?A: The Indian growth last year was 11 percent. We expect the Indian growth to be more than 15 percent and a significant part of this additional growth largely is going to come from the new capacity. However, this will improve Q-o-Q because all the capacities are not coming up together. We will have it and coming in from Q2 onwards, so you won’t see the full impact of all the new capacities during FY17 significant or the full year would be FY18.Mangalam: Could you also give us a break up of all your segment guidance, the kind of revenue that you are looking at in your abrasive segment, electro mineral segment, the same time your porous ceramics as well. What is the kind of revenue growth you are looking at and what are the margins you are looking at in FY17?A: The consolidated growth would be between 15 percent and above on all the segments. Margins on an average on a consolidated basis will get stronger by at least 1-2 percentage points, so that broadly what we are expecting to do during this year.Reema: You have also taken an approval to raise Rs 250 crore via the non-convertible debentures (NCD) route. What is the need for that, could you update us on your balance sheet position and how that is likely to change in the coming quarters?A: We have a very strong balance sheet. Our consolidated debt is about Rs 340 crore less than 0.3 percent and this is short-term and long-term combined without netting of cash, so we have fairly strong balance sheet. This we took even last year as an approval on a routine basis, we didn’t utilise it. We have taken it for this year. There is always a possibility that we may have to close out a couple of transaction, which is in the discussion and so we may require the money. So we have taken this approval.Reema: What are the nature of the transaction that you currently in discussions with?A: It will be appropriate to talk about as soon as it is completed.Reema: Would it be in the nature of acquisition. Give us at least a rough idea what the company’s strategy is going to be with respect to this?A: There are certain segments where we are looking at a mergers and acquisitions (M&A) and there have been discussions largely to close out one of them and so this is why we have taken this.