Hatsun Agro Product saw a revenue growth of 15 percent and 8 percent hike in the EBITDA margins in the fourth quarter of FY16. With milk prices having stabilised and witnessing minor increases, the company is expected to do better in the first quarter of FY17, said RG Chandramogan, the chairman and managing director of the company. He expects the business to grow by 17-25 percent in FY17. The company has significantly reduced its commodity business to around 3.5 percent in FY16 and expects to continue going forward, he added. He maintained that the EBITDA margins to improve in FY17 from the current levels of 26.4 percent. Company is also aiming to expand its procurement network in Andhra Pradesh, Maharashtra and Karnataka through its internal accruals, Chandramogan added. Below is the verbatim transcript of RG Chandramogan's interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.
Reema: It's been a good quarter for you; your revenue growth is 15 percent, your margins have come up to nearly 8 percent. What is the outlook for FY17 looking like especially if you could throw more colours on the first three months of the summer season?
A: We can expect better performance in the coming year because the last year has been a year where the milk prices depressed, so probably deflation has been corrected; inflation is on. We expect a decent quarter.
Nigel: Could you give us some number. Last year you have grown by 17.5 percent, your margins as well - that has been a positive. It has improved to around 9 percent. I believe that you have some expansion drives that you are taking; you have some procurement drive as well that is going on. Throw some light on that and what could that mean in terms of revenues. Could we see another 17 percent growth from these levels, can we hold on to those margins of around 9 percent and also what is your share of value-added products to the total pie currently?
A: We have been having 25 percent commodity business five years back. We have reduced it to 3.5 percent. We expect to maintain the same. However, in this year we will be able to maintain the growth rate of whatever we have done in the last year compared to the earlier years and the margins can be better than what we have right now.
Reema: FY17 revenue growth to be similar to FY16 with the company maintaining, if not improving the margins?
A: That's right.
Reema: Could you tell us what the company's expansion or procurement plans are for FY17?
A: Right now we are expanding our procurement network in Andhra Pradesh as well as Karnataka and Maharashtra apart from having a base in Tamil Nadu. We are expanding it right now.
Nigel: Do you require funds for this expansion. Have you already priced that in. How does that work and how does it help you going ahead if you are increasing your procurement centres?
A: The procurement centres will not cost much. Marketing inputs is the real cost. Expansion can be made with our internal accruals. There is no need for raising more money.
Reema: With the expansion into Andhra Pradesh, Karnataka and Maharashtra, shouldn't your growth rate be higher in FY17 compared to FY16?
A: Possible. We are looking between 17 and 25.
Nigel: So we are likely to see closer to Rs 4,000 crore?
A: Yes. Nigel: How much comes from exports and how much of your total revenues come in from value-added products because margins will be better over there?
A: I do not believe in value-added product business basically the milk is the core strength where all the value-added products have to lie down for distribution and delivery. However, B2B business is a not a value-added business in my opinion. We count for consumer business. We do not look at B2B business any day. We have been reducing the commodity sales as far as possible. We are only looking at consumer sales. We are into ice-cream, curd and milk and we are looking at growth only in these three sectors plus cattle feed. These are the four sectors that we have.
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