S V Raghavendra, Chief Financial Officer, Amara Raja Batteries speaking about the company's third quarter performance said the planned fresh capital expenditure will be completed by December 2015 and will result in higher market share post it coming on stream.According to him the margins for the company are likely to sustain at current levels of around 17 percent.The revenues for the company both quarter-on-quarter (Q-o-Q) and year to date grew by 23 percent. The volume growth for industrial batteries Q-o-Q was 31 percent, whereas the four-wheeler battery growth came in at 12 percent and two-wheeler battery grew 56 percent said, Raghavendra.The surge in other expenses was due to one-off expenditure on different accounts coupled with capex and advertisement and promotion cost, said Raghavendra.Currently, exports contributed 7 percent of the turnover and could marginally go up in future because exports margins are better than domestics margins.On the original equipment manufacturer (OEM) front, he said there is visibility of green shoot in demand and hope for upsurge in demand post changes in government policies.
The company reported 7.71 percent increase in its net profit at Rs 102.34 crore for the third quarter ended December 31, 2014 compared to Rs 95.01 crore reported in the same quarter last fiscal.Net sales of the company rose to Rs 1,059.55 crore for the third quarter ended December 31, 2014, as against Rs 859.95 crore in the year-ago period, Amara Raja Batteries said in a filing to the BSE.
Below is the transcript of SV Raghavendra’s interview with Latha Venkatesh & Ekta Batra on CNBC-TV18 Latha: Well, let me get some things out of the way that which we couldn't obviously get from the P&L. What is the overall volume growth this quarter and if you can give us the break yup between auto and the battery segment?A: Our overall revenues, both our quarter-on-quarter (QoQ) and year-to-date (YTD) grew by 23 percent. On the industrial battery side, the volumes growth has been about 31 percent quarter on quarter and on the four wheeler, the growth has been around 12 percent whereas the two wheeler batteries grew by about 56 percent.Ekta: I just wanted to focus on your surge in expenditure that we have seen this quarter. We understand it is the highest that you have seen in eight quarters. What led to this surge and is it a one-off or is it a sustainable trend going forward?A: It is a one off kind of a growth in expenditure on different counts but this is a quite normal expenditure, there is no abnormal expenditure in this.Ekta: So, what led to that?A: We generally have expanded our operations in the second location. The manufacturing expenses plus the geographical expansions also is happening coupled with more of advertisement and promotion.
Latha: Is the entire Capex done?A: Capex is still in progress. Our four wheeler expansion will be commissioned quite soon and we are working on a tubular battery expansion. We have started, we have to got two approvals in the last board meeting and that should be completed by December 2015.Latha: So, how much will your market share rise when this new capacity addition kicks in with commercial production?A: We expect to get good market share whereas the original equipment manufacturers(OEMs)are concerned and in the after market also we should get handsome market share.Ekta: I just wanted to concentrate a little more on the margin picture. You did talk about your other expenses possibly being higher only for this quarter. There are some estimates that maybe your margins could expand to 18 plus percent in the next two fiscals. Do you think that is a possibility based on maybe higher capacity that you might be working with? What is your margin trajectory we can see?A: Margin should be sustained as I would be maintaining I in the earlier quarters as well. We always try to maintain the same margins. There could be some ups and downs based on the economic indicators but by and large the current margins should be sustained.
Ekta: And how would lower crude prices benefit you in the coming quarters? Was there any benefit seen this quarter as well?A: We are not much dependent on the crude prices. We are London Metal Exchange where we purchase lead. They are linked to the contracts that we have with the OEM’s, so they have back to back contracts, so for any expansion or reduction in the prices are passed on to the customer. Latha: What about lead prices? How will that impact margins, I will assume that it would affect positively or do you pass that on as well?A: We pass on to all the OEM’s. We have a back to back clause with them. There could be some benefit in the form of the replacement market but the lead reduction prices may not be immediately passed on but depending on the market conditions, demand supply we could vary the prices.Latha: So your margins in the second half could be better than 17 percent?A: I would not really want to comment on that bit we definitely say that we will try to maintain the margins. Ekta: What would your estimates on volumes be then going forward and any price hikes that you would possibly be able to pass on.?A: Price hikes in what, the commodity prices?Ekta: Price hikes in your battery segment to your customers?A: Prices as I said, with the OEMs, there is always a pricing contract which is governed by the pricing contract(4.48 inaudible)Latha: Because of your additional capacity that comes in, will you be tapping export market and are they typically higher margins?A: Yes, export margins do give us much better margins and we already growing quite fast as far as export markets are concerned. Our exports in the last two quarters have significantly grown.Latha: So might it form a higher share of sales in the second half or when the new output comes in?A: Currently around seven percent of our turnover comes from the exports. So, it could go up marginally, Latha: And what about your inverter trading sales that appears to have been strong in the quarter, is that sustainable?A: Inverter business is a highly seasonal business so only when the summer approaches, you find more of inverter sales and we have always seen that also growing steadily. That is one of the reasons we are entering into manufacturing even other batteries.
Latha: Now when your new capacity kicks in, what is the percentage increase in revenues that we should pencil in?A: The additional volumes from the tubular batteries or the four wheeler batteries, they are going to add 2.2 million batteries are going to get added, the four wheeler batteries are going to get commissioned ad tubular batteries will be 1.4 million. Latha: What is the percentage increase in total capacity in that case?A: About 25 percent. Latha: So you should be able to maintain a 25 percent compound annual growth rate (CAGR) for another couple of years?A: Yes, we should but I would not like to give any forecast or guidance on that.Latha: Is there any green shoot on demand at least increasing from the OEMs? A: Yes, it is if you have seen the last couple of months, we have seen big auto bigggies have been reporting good sales. So, waiting for the new policy announcements from the government, then as the economy opens up, there will be more demand for the batteries. Latha: But that is in the future, you have not already seen them ordering more?A: They are but today we are almost full in our capacity until the new capacity comes in.
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