Expect better profit in FY17: Goa Carbon

Shrinivas V Dempo, Chairman of Goa Carbon expects the aluminium sector to do well if the commodity prices pick up.He also expects the sales realisation to go up in the near future."If the raw material prices remain at the level that they are and the sales realisation goes up a little bit then we would see a better profit than last year," he said.Below is the verbatim transcript of Shrinivas V Dempo's interview to Nigel D’Souza & Reema Tendulkar on CNBC-TV18.Nigel: Topline we did see a knock of close to around 20 percent; that is entirely because of realisations. Were realisations lower in the past quarter?A: Yes, the realisations were lower to some extent by about 10 percent. We also had a slight blip in the tonnages because some of the plants decided to carry forward the tonnage. We are servicing it in this month of July.So, your observation is right that the sales realisation has come down but the good news is that the raw material price has come down even more and that is why you see a higher profit before tax (PBT) than the same quarter of last year. So, we have been able to control the raw material pricing and the value addition as a result has gone up to about 23 percent from about 19 percent of last year same quarter.Reema: Let us talk a bit about your gross margins which you are saying have improved on account of lower raw material prices. At 31 percent is it sustainable or do you believe gross margins have peaked out?A: My own expectation is that the sales realisation should go up in the near future. We are seeing some fresh demand coming in. If you see the quarterly results of the aluminium industry, it has improved a little bit and we expect going forward if the commodity prices pickup then we expect the aluminium sector to do well. As a result of which the demand for calcined petroleum coke (CPC) should go up.My own expectation is that if the raw material prices remain at the level that they are and the sales realisation goes up a little bit then we would see a better profit than last year. Of course this is subject to two riders, one is of course that we are very dependent on the rupee-dollar exchange rate and the second is raw material pricing, which we are dependent on China to a large extent for the raw material.Nigel: You made that valid point that aluminium business has been improving, things are looking good over there so maybe you have the kind of headroom to increase prices as well. So, give us a couple of numbers, aluminium, how much does it account for in terms of the total amount of sales, 80-85 percent?A: Aluminium accounts for almost 80 percent of the sale. The balance goes as recarburizer to steel foundries and titanium dioxide industries.Nigel: The second part of my question was realisations. I have just taken a look at it and from the start of this year, they have dipped by close to around 15 percent. July as well was no better as per what I hear from the industry. Going ahead do you expect to see a price increase, when can that come about because now we have the monsoons, I don’t know whether you can go ahead and increase prices over there and what is your capacity utilisation as well?A: We have confirmed tonnages and orders till the next month, that is till September. So, we don’t expect any change in prices till September. The prices are going to remain at the same level as what we see right now. What we expect is post September, if the healthy trend continues in the aluminium sector, then we expect when we go for renegotiation of contract sometime in September, that is the time we expect some increase in prices for CPC.Reema: What is your sense about the volume growth in the coming three quarters?A: Last year we clocked about 150,000 tonne. As of the sense that we are getting today, we should be at the same level more or less. However, we are trying for a few new buyers that we are aiming at and negotiations are going on. So, if that comes through then we may see a 10-15 percent increase in tonnages.Reema: With realisations under pressure, volume growth to be largely flat on year-on-year (YoY) basis for FY17 will you be a profitable or a loss-making company?A: Our guidance is that we should be far more profitable than last year. As I was explaining earlier, we have been able to control raw material pricing to some extent as a result of which our value added has gone up. That is the reason compared to the same quarter last year we have done better results despite the sales realisation dropping.Nigel: Every quarter when we speak to you or when I look at your numbers there is always a shut down. Are all your three units functioning?A: Currently all three units are functioning. Of course Paradeep has done almost 90 percent capacity utilisation, Goa has done about 61 percent and Bilaspur is a little bit of a drag because we still don’t find demand from steel foundries a lot but that is operating at about 50 percent right now.Nigel: Tell us what exactly is your balance sheet looking like, currently I see your other income has spiked up, your finance cost in fact that as well has gone up, I think on a sequential basis it is low, on a YoY basis it is higher and what is the forex loss, Rs 3 crore this time around?A: Rs 3 crore most of it is unrealised forex loss and we are seeing that the dollar and rupee as I said earlier, our operational results are very much dependent on where the dollar goes up. We are seeing currently that the dollar-rupee is holding so with that expectation we said that we should be profitable for FY17.