Expect better sales on back of normal monsoon: Zuari Agro

Zuari Agro Chemicals on May 13 reported a net loss of Rs 22.64 crore for the March quarter due to lower income from operations. The company had posted a net profit of Rs 11.16 crore during the same period in financial year 2014-15.Speaking about the fourth quarter numbers and the outlook going forward, MD & Group CEO Kapil Mehan said even though the numbers looked weak in terms of profit, operationally it was a good quarter.It is important for one to look at their full-year fiscal numbers than quarter-on-quarter metrics because overall sales revenues have grown, said Mehan. Two droughts did impact the company revenues but they expect a recovery on the back of a normal monsoon, he said.The company also aims to pare its debt going forward, said Mehan. The current debt at group levels stands at Rs 7300 crore, which they aim to reduce substantially. Below is the transcript of Kapil Mehan’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Sonia: Your revenues have declined almost 20 percent year-on-year (Y-o-Y) to Rs 1,280 crore this quarter. Is there more pressure that you would expect in the first half of FY17?A: As I have said always that being in agricultural inputs business, you should look at the overall, at least 12 months at a time, because quarter-on-quarter (Q-o-Q) numbers can sometimes be misleading both, whether they are up or they are down. So, if you look at our overall sales revenue, that has grown from Rs 7,687 crore to Rs 10,028 crore which of course, includes the volumes and the sales of Mangalore Chemicals and Fertilizers. But having said that, our sales volume overall for the group has grown from 34.9 lakh tonnes to 41.2 lakh tonnes and for the quarter, there is a marginal increase of 10.6 lakh tonnes to 10.9 lakh tonnes.So overall operationally the quarter has been good, but what has really impacted us is high level of borrowings which is the result of higher level of subsidies, so that saw our interest cost going up from Rs 318 crore to Rs 500 crore for the year at a consolidated level. And same is the situation at Zuari Agro Chemicals standalone results also. Subsidy, just to give you a number, has gone up to now about Rs 4,558 crore for the group which is an increase of almost 20 percent over last year. And because the season as you know, we had two conservative droughts in our key markets of Karnataka and Maharashtra and that had led to pipeline inventories building up as well as the trade outstandings going up. So, all this put together caused our interest cost to go up.But operationally, we think we have a stage set for recovery. Monsoon predictions are good and we are already seeing some pre-season activities beginning to happen in the markets which are early markets. So, we should expect better times going ahead. Latha: Therefore, how should we think about your debt? If you sold more, will your subsidy bill actually bloat and therefore, tell us what is your current debt for the entire group and for the standalone. And what might it be at the end of FY17? You also have some expansions.A: We are expecting our overall debt at the group company level, three companies put together which is Zuari Agro Chemicals, Mangalore Chemicals and Paradeep Phosphates has gone up to about Rs 7,523 crore and at standalone level, it is around Rs 3,350 odd crore. And we expect that to come down in the first half definitely, because this year the subsidy rates are lower and even the trade collections we expect to be better in view of a good monsoon that is forecast going forward. So, overall, we expect a substantial improvement in our borrowing levels. And our effort also will be to ensure that we take advantage of good seasonal conditions and our teams are well –geared to do so.Sonia: Can you quantify that for us? From this Rs 7,500 crore of debt, how much will it come down to over the next 1-1.5 years?A: It is difficult to quantify at this stage. We have to see how the year goes by, but all the signs are positive and we should see a substantive reduction in that number.Latha: An important question. Mangalore Chemicals engaged Ernst &Young LLP (E&Y) to carry out that forensic investigation in some of the transactions relating to advances made to United Breweries. Now, E&Y from what we learn had indicated that there may have been some irregularities and we know that Mangalore Chemicals provided Rs 217 crore. Can you give us some updates, what might that figure be? Will Mangalore have to provide more? Where does this case head?A: Our notes to the accounts of both Mangalore Chemicals as well as Zuari Agro carries a full picture and status as on date. So, beyond that, there is no further development of that case. And as and when there is any development, we will keep all of you informed.Latha: But you were not written to by Securities and Exchange Board of India (SEBI) or any of the regulators?A: These results have been published and they are public knowledge and that is where the status is and our people are evaluating what are the options open and once, the process is over and our investigation and we get the reports on same, at that time, we will take whatever is appropriate action to be taken to safeguard interest of everybody.