Expect to hold EBITDA margins going forward: Atul

Nigel: With regard to your life science chemicals business, we have seen that your revenue is down by nearly around 7 percent if you look at it on a year-on-year (YoY) basis. Your EBIT margins as well have contracted a tad bit, what is going on over there?

A: Yes, that is right. We have two segments, Life sciences and performance chemicals. Now what we have in life sciences is things like chemicals, which go for personal care, flavours and fragrance and also what goes in agriculture.

Now the agriculture business basically crop rotation chemicals are going through a sluggish demand phase. So that is the reason why life science segment is lower.

If you see the entire period of nine months, life science was lower only by three percent. Particularly in Q3 as we had some issues as well as in Q2. Q1 was okay, so overall reduction is only three percent.

Sumaira: I do take your point. In fact there is just a bit of a clarification that if you see on the headline numbers, it looks as if profits are down 17 percent but you have to take in to account the one time special dividend that they had of about Rs 20 crores, so if you see that way -- this is a just note for our viewers -- you would see that profits are looking good. Your margins have improved a tad bit as well on a year on year basis. Now you are on that 15 percent mark. Do you have much more headroom from here for margins to head higher?

A: Overall margins are stable as far as we are concerned. I mean the EBITDA margin in fact has gone up by one percent during this year. What we feel is we may be around this. We may not go down drastically but we may not improve very much either. So, we have an EBITDA of 16 percent today so, we hope to maintain around that 15-16 percent. Last year was 15, this year is 16, if you consider the nine month period. We are targeting that we should not go down from here.

Nigel: In terms of your segmental performance, can we see any improvement? You said that your Life science chemicals we are seeing some contraction there but with regard to your performance and other chemicals business, so there the EBIT is roughly around 12 percent. Do you expect to hold it over there? Is there any kind of upside that we can look?

A: Yes, in both segments we hope to retain the margins. In fact the Life science chemicals margins have come down as you may have noticed and we expect that crop protection which was the main reason for this decline to do well now. That is our estimate and Q4 onwards crop protection will revive its old glory so to say and the margins may improve in Life sciences chemicals. Performance and other chemicals, we should be stable on margins.

Sumaira: You have a vast land bank in Gujarat. Do you have any plans of divesting anything there? Your finance costs are also coming down, are you looking at pairing of some debt, could there be some land sale on the cards?

A: We overall have around 1,300 acres and we still have let’s say around four five hundred acres for further expansion. We do not at the moment have any plans to put it to any alternatives other than manufacture of chemicals, what we are doing.

Nigel: With regard to a merger, I remember your stock had shot up when you’ll were mulling a merger with one of your companies, Amal I believe. So what does that mean, what is the update on that front, could you give our viewers some more clarity?

A: It’s not a very major event. Amal is a company promoted by Atul and it was doing well till a few Gujarat Pollution Control Board (GPCB) standards changed around five six years back. From that time onward it has become very expensive for that product to comply with the GPCB norms completely. So, we didn’t want to be in a product where we can’t thoroughly comply with the GPCB norms or even go beyond that.

Therefore we thought that we will merge the company to make it come out of its sickness. We will continue that business and we will incidentally also get a tax break of around Rs 15 crore due to this merger because of its carry forward losses, which money we can spend on further improving that business. And as far as the impact on the finances of the company is concerned, the equity capital, today we have 297 lakh shares, equity shares of Rs 10 each outstanding. That wil go by around eight or nine lakh share. That is the impact because the exchange ratio is one share of Atul for 50 shares of Amal. So the impact is very small and it’s not a very significant event for the company.

Nigel: You have already done roughly around 15 percent growth on the revenue front. You had told us for FY15 you will be looking at 15 percent so in the Q4 can we expect any upside surprise or some thing on those lines or you are maintaining that 15 percent mark?

A: We had said that we will grow by 15 percent which we have maintained in the first nine months. Now, Q4 we are hopeful of doing well but one thing that is happening in the market now is that, now we have some businesses like polymers which has both commodities and specialties but as where the commodities are concerned, they use true derivative inputs.

With the crude prices going down drastically, the iron prices are going down and so the finished good prices are also going down. Therefore the percentage of increase in sales as compared to the previous year will get impacted by that. Otherwise we do not expect any major surprises on the negative side but yes sales will be under pressure because of that. Though the margins may not be there, the iron prices are going down and so are the finished goods prices.