Need to better margins, cut working capital cost: Zuari

Zuari Agro Chemicals posted an impressive quarterly numbers. Kapil Mehan, MD & Group CEO of the company spoke about the turnaround strategy, gameplan ahead and clarified Zuari's position on subsidiary Mangalore Chemicals and Fertilizers (MCFL).Below is the transcript of Kapil Mehan’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: To what do we tribute this turnaround on all fronts – revenues, profits, margins?A: Our operations have been very good and our production has been close to 100 percent capacity utilisation in Goa whether it is urea its production is up by almost every one percent; complexes production is up by 29.2 percent and overall sales in volume term is up by almost 79 percent based on higher imports as well as higher manufactured products.All that has led to a profit before interest and tax (PBIT) number closed to Rs 70 crore. However, profit would have been much more but the receivables that are due from the government in form of subsidy which have not been coming as quickly as we would have like to come so our interest cost continue to be pretty high as we would like them to be.Sonia: What exactly are the pending receivables from the government and any indication of when it may come through?A: As on June 30th we had closed to Rs 1,400 crore as pending dues from the government. That would account for half of our interest cost. Where as overall on core working capital we have managed to reduce that by almost 18-20 percent on year-on-year for the quarter ended this. However, we must see the results in the sense that we have also invested in acquisition of MCFL during this quarter. Otherwise our interest cost would have been lower than what it is now.Latha: What is the status with Mangalore Chemicals and Fertilizers (MCFL), will you all consolidate it, amalgamate it at some point?A: It is too earlier to say what the way forward would be. The fact is it is our subsidiary now and once we know the operations better over a period of time then we will take an appropriate decision. We will ensure that there is more value creation at the market as well as there is efficiency improvement across our manufacturing sites.Latha: You aren’t yet taken over the management?A: We have not yet taken over because that will happen post annual general meeting (AGM) which is scheduled for September 30th.Sonia: Can you give any indication of what the revenue growth would be say by the end of the year or in the next couple of quarters, will you be able to maintain this 50 percent trajectory?A: This 50 percent may not be maintainable but definitely our plants in July have also done well and they continue to do well. If we maintain that definitely there will be an improvement in our profits, because we are fully now converted to gas. Our working capital going forward should also pull down with this gas pooling arrangement having come into the effect.All that would be helpful to improve in terms of absolute numbers. However, definitely the margins will also needs to improve from this 3.5 percent, it is not a very great margin when we have moved from negative to positive territory in a marginal way.