"Because of better margins in the LED segment and better efficiencies in manufacturing, in the battery segment, the company has been able to post its highest ever operating margin in the recent few quarters", Amritanshu Khaitan, MD of Eveready India told CNBC-TV18.
In an interview to CNBC-TV18, Amritanshu Khaitan, MD of Eveready India spoke about the results and his outlook for the company.
"Because of better margins in the LED segment and better efficiencies in manufacturing, in the battery segment, the company has been able to post its highest ever operating margin in the recent few quarters," he said.
Below is the transcript of Amritanshu Khaitan’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Anuj: Your revenue was flat, but profit went up because of higher operating margin. Topline number, when is that going to come back?
A: Topline this year will be muted because of a few reasons, which in a way has worked out very positive for the company and that is the reason the operating results have seen a sharp improvement. Loss-making category for the company with low gross margins was compact florescent lamps and that category had a margin of only 18 percent at a gross level and we were making an earnings before interest, taxes, depreciation and amortisation (EBITDA) loss in that product. That is degrowing now at a very fast pace of about 50 percent. That has resulted in the topline being flat even though the LED business for the company has grown by 90 percent value terms, that CFL decline has impacted the overall sales growth. But because of better margins in the LED segment and better efficiencies in manufacturing, in the battery segment, the company has been able to post its highest ever operating margin in the recent few quarters of nearly 12 percent this quarter.
Sonia: In your press release, you did mention that you are not seeing any pick up as far as rural demand is concerned and also, in the battery segment, particularly, there is quite a bit of dumping of imports from China. So both of these put together, how do you see the second half of the year pan out because in the first half too, your revenue is absolutely flat. Should we expect another flat performance in the second half?
A: I would say by Q4, topline growth should start seeing better traction primarily the main reason being the base effect of CFL and LED prices coming down would change and thereby topline growth should start coming in.
Our foray into appliances will also add further topline. The two categories you mentioned, the battery business, as you mentioned is seeing pressure in terms of volumes due to dumping from China. But we are very hopeful that with the goods and services tax (GST) bill coming through, with whatever the government is doing to curb black money, the spurious trading of products would come down and that would have a positive impact not only on battery business, but even on our flashlight business where 50 percent of the market is unorganised.
So, hopefully, in coming quarters, you should see the core business having a better traction in terms of topline. But notwithstanding the topline and volume, the margins in the battery segment as well as the flashlight segment have seen upward trajectory and that trend should continue in the coming quarters.
Anuj: This is interesting, because we have now seen a huge rally in zinc prices and I believe zinc would form a large part of your input costs. So, what gives you that confidence that you will be able to sustain these margins?
A: Zinc used to be a very big component when the battery industry comprised more of the D size battery, which was 80 percent 10 years ago. Today, D size batteries where zinc plays a key role is only 10-12 percent of the total battery market. In that segment as well, we have taken price increases in the recent quarter to pass on the zinc cost prices going up. If you see the currency movements have been on the positive bias where the rupee has been stable to appreciating and our larger raw material basket has remained benign. So, these things coupled together with better manufacturing efficiencies have helped us improve the operating margins in the battery segment.
Sonia: So, by the end of FY17, what kind of operating margins are you looking at? It has been pretty stable at about 11 percent. Is this a level that you could sustain by the end of the year?
A: The Q2 always has a higher margin because that is our peak quarter while Q4 sees a bit of a dip. Last year, full year our margin was 9.5 percent. This year, we will be looking at anywhere between 10.5 percent and 11 percent for the full year. Gross margins itself have expanded by 2 percent because of the product mix shift taking place, both in batteries and LEDs in lighting.
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First Published on Nov 10, 2016 02:21 pm