The company plans to pare their debt before planning for additional capex, said Naresh Jalan, MD, Ramkrishna Forgings.
It was a top down strong performance for Ramkrishna Forgings in the quarter ended December, 2017. The tonnage increased by over 60 percent to 33,000 tonnes. However, the only hiccup was that margin upside was restricted because of strong commodity prices.
The full year guidance for tonnage was 1,15,000 tonnes and the company is poised to do better than that in FY18, said Naresh Jalan, MD, Ramkrishna Forgings.
He said the major driver for this growth was the domestic commercial vehicle market which has done extremely well along with the Class 8 trucks in the US. Around 20 percent of business comes from the North American market, he added.
Similar performance can be expected in the fourth quarter as well, said Jalan.
The revenues for the company were up 89 percent in the Q3 at Rs 400.7 crore compared to Rs 212.3 crore for the same quarter last fiscal. The Year on year (YoY) EBITDA was up 90 percent at Rs 77. 1 crore versus Rs 40.6 crore.
In Q3, the YoY total tonnage was up 62.6 percent at 33,107 tonnes. The domestic tonnage was up 63 percent at 25,749 and export tonnage was up 59.9 percent at 7358.
With regards to margins, he said operation leverage will come through in Q4 because they have passed on the increased commodity prices to the customers from January 1 onwards. The prices of alloy steel increased by Rs 4000 on December 1, he said.
With regards to capacity utilisation, he said it currently stood at 68 percent but would likely hit 80-85 percent in calendar year 2018.
He said they are a looking at an annual growth of 20 percent going ahead.
The company also plans to pare their debt before planning for additional capex. The total debt as of now is at Rs 700 crore and they have a repayment schedule of Rs 90 crore per year.
Below is the verbatim transcript of the interview.
Sonia: If you can just take us through what the tonnage growth could look like for the rest of the year can you do better than this 60 percent growth that you have seen in this quarter and what are the triggers for higher demand?
A: Right now full year guidance was close to around 1,15,000 tonnes for us and I think we will do better than that. So, we will be continuously growing at that pace and major driver to this growth is the domestic commercial vehicle market is doing extremely well. As well as the Class 8 trucks is US is doing extremely well.
Latha: Any idea how the year can end? Since you will have excellent visibility for fourth quarter itself is this a repeatable performance in the fourth quarter Rs 400 crore?
A: Yes, it is a repeatable performance for the last quarter also.
Latha: What about margins do you think you can get more operational leverage and do better?
A: Yes, in the fourth quarter, actually December 1st there was Rs 4,000 price increase for alloy steels. I think we have been able to pass on that increase from January 1st to all our customers. So, fourth quarter we will have this operational leverage coming in.
Latha: Are you expecting more such raw material hikes and you are confident most of it can be passed?
A: Yes, we are confident most of this can be passed but I think as of now increase in alloy steel is done till April 1st 2018.
Latha: What is your capacity usage?
A: As of now it is 68 percent.
Sonia: You just said that North American truck market is doing very well, what percentage of your business comes from the North American market and what kind of growth do you foresee from that pocket?
A: Our business is close to around 20 percent from the North American Class 8 trucks. Next year we tend to grow further on this because of the new developments which we have done so going forward we feel that with the growth in the truck industry for next two years we will be extremely benefited with that.
Latha: You said 68 percent is the current capacity utilisation, do you see it rising in the next two months before the year is out?
A: Yes, this year by the year end we should be touching close to around 82-85 percent utilisation in our current capacity.
Latha: So, you should be planning capex in that case?
A: No, I think we will be retaining cash for another year and paying off the debt and only after that we will plan any capex.
Sonia: On the revenue front you are sitting on a base of around Rs 400 crore of revenue per quarter what can the quarterly run rate improve to now that you have new orders on your books?
A: We are looking for another 20 percent growth from hereon.
Sonia: In the annual revenues is it?
A: Yes, annual revenue.
Latha: You said there is a debt payoff plan can you tell us what is the total debt and the time table to reduce it?A: Our total debt as on day stands around Rs 700 crore and we have a re-payment schedule of close to around Rs 90 crore per year.