Expect topline growth of 20% in FY16, FY17: Star Ferro

While the profit was impacted by fall in cement prices, volumes grew by 27 percent in the third quarter of FY16, says Sanjay Gupta, CEO of Star Ferro. Due to discounts, realisations went down by Rs 15 per bag in the last quarter, he adds.The company reported a weak quarter with operating profit falling 22 percent to Rs 91.7 crore and total expenses going up 23 percent to Rs 213.4 crore in the third quarter of FY16.Gupta says cement prices have improved by Rs 5-10 per bag in the month of January and are expected to follow upward movement in coming quarters as well. Aggressive market strategies and branding in North East and outside will yield benefits in period ahead, he says. Gupta expects topline to grow by 20 percent in FY16 and FY17 both. Below is the verbatim transcript of Sanjay Gupta’s interview with Nigel D’Souza and Reema Tendulkar on CNBC-TV18.Nigel: Good growth on the topline, 27 percent high over there. Could you give us what exactly were the sales numbers, what were the capacity utilisations and how exactly did realisations pan out in the last quarter? A: Last quarter we had our sales of 6,53,00 tonne as compared to 5,15,000 tonne corresponding period last year. So, in terms of total volume it has grown by 27 percent and it is reflected also in the total topline volume also. However, if you look at it in a volume network discounts, the discounts have actually gone up which signifies that there is a reduction in prices by around Rs 15 a bag in entire eastern side of it. So, if I look at, the realisations have actually gone down by Rs 15 a bag. The capacity utilisation as of now stands at 70 percent for the quarter which is corresponding period last year it was around 63 percent but now it is around 70 percent. Reema: You said the prices are down Rs 15 per bag, can we expect a pick up or improvement in the cement pricing or the reverse take place and the discounts could even increase from here? A: Coming into October we were expecting that there will be some improvement in the prices but that has not materialised. However, what we have seen in the month of January, there is some uptick in the prices by about Rs 5-10 a bag in various different markets.What we are expecting that now the demand should actually pickup. The Q4 normally becomes the best quarter for the cement industry; Q4 and Q1 are the best quarters so we will definitely expect some improvement in prices going forward.Nigel: What about volumes, will volumes pickup as well if you increase prices? What are your targeted volumes for Q4? A: We will be doing a topline of around Rs 500 crore and we will continue to grow at 20 percent because we have for last nine months also we have grown at around 20 percent. We expect that Q4 we will definitely grow at around 20 percent. We have also taken up aggressive marketing strategies, the branding exercise within North East and also outside North East. We have taken huge marketing initiative of largest Durga idol in the world where we spend around Rs 10 crore in the last quarter. So that had also impacted the margins in this quarter. That is going to yield benefit for us in coming quarters; that is what our expectation is. Outside North also, we are growing rapidly. We have actually grown over volumes by around more than 50 percent outside North East. So, we expect these volumes to pickup. We have also hired another grinding unit near Durgapur. It is a small capacity, at least it adds it to and it will definitely help us in terms of ramping up the volumes and when we come out with the capacity, it will also help us in that. Nigel: What is your geographic breakup, you said that in other markets it has gone up by 50 percent so currently what is your geographic breakup for your sales? A: Presently what we have done, in North East we have grown at around 16 percent. North East volumes have gone up by 16 percent and the outside North East volumes have gone up by 50 percent. So, geographically we are around 35 percent of our volumes are in outside North East and the rest 65 percent is within North East. North East also we have increased our market share from 23 percent to 26 percent in this quarter. Reema: You indicated that revenue growth should be around 20 percent; your revenues could hit Rs 500 crore in Q4 itself. What is the target that you have for FY17 in terms of a volume growth? A: We are looking at keeping at the topline growth and the volume growth at the same level of around 20 percent; that is what our targets are. On an overall basis we will definitely – we are a East focused company. We continue to be focusing only on East so we are looking at a 20 percent topline growth even in FY17. Nigel: You are talking about various expenditures that you have taken up in the last quarter, what exactly was the EBITDA per tonne? You have told us in the past, you are looking to see your EBITDA per tonne move back towards the Rs 1,500-1,600 mark. Could you give us those numbers? A: This quarters EBITDA margin is around Rs 1,380 per tonne. It is better than the last quarter but it is less than our expectation. Again it all because of the pricing, the prices which have come down that has got a lot of impact on the EBITDA margin. Full year basis we had EBITDA margin of Rs 1,850 last year. We will be more or less there but we will be a little short of that reaching that target of Rs 1,850 maybe we are looking at around Rs 1,700 kind of an EBITDA margin for the full year FY16.