New capacity by H2FY18; growth potential good: SML Isuzu

The company reported a standalone total income from operations of Rs 463.21 crore and a net profit of Rs 41.12 crore for the quarter ended Jun '16. Other income for the quarter was Rs 1.57 crore.Below is the transcript of Gopal Bansal’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: The salient point about your earnings was the margin improvement, 210 basis points or 2 percent to 13.2 percent. Is that sustainable?A: Sustainable in what sense?Anuj: Do you think you will be able to deliver in teens the margins?A: You would have seen last year’s fiscal also, Q1 is a good quarter for us. It is a school bus season. The sale number, volume, profitability, margin is higher in Q1. It does not hold good for other quarters because school bus sales tapers down in Q2 and Q3 and starts picking up in Q4. So, I cannot say because then the operating profit margin is a combination of many factors, product mix, commodity prices and stuff like that. So, it is very difficult to give any number on margin, but yes, we have done well in the first quarter. So, hope to do well in the other quarters also, year on year (YoY).Sonia: Can you tell us a little bit about the increase in production capacity? You plan to raise it to 2,000 vehicles per month from 1,500 vehicles per month. When will this production come onstream?A: On second half of next fiscal, it should be available.Sonia: So, once it comes on stream, by the second half of FY18, what kind of growth do you see in your revenues? You are sitting on a base of around Rs 1,160 crore. By the end of FY17 and then FY18, what kind of revenues are you looking at?A: I cannot give any number to it. As I said, there are so many factors which, especially during this year and next year, there are so many things taking place, so many changes taking place like on regulatory front, the Bharat Stage Emission Standards (BS)-IV entry, scrapping of vehicles, diesel vehicle ban in National Capital region (NCR), which are positive for sales. GST, again next year if it comes to being, this will be good overall for the industry. The overall rates are going to come down, logistics going to change. So, we are preparing ourselves, looking at a higher growth in the total commercial vehicle (CV) industry itself. We are preparing ourselves because our monthly capacity is 1,500. If we have 18,000, monthly it is 1,500. So, during the peak season we have a constraint. So, we are removing that constraint and if there is a demand throughout the year also, we can go for utilisation of full capacity. So, we are preparing for that.Anuj: That is an interesting point because I was looking at your last quarter numbers. In May, you had done 1,929 units -- of course, much higher than your capacity. Now that you will be scaling it up to 2,000, what kind of monthly run rate do you think you will be able to deliver once you have the new capacities?A: That takes care of demand up to 2,000 vehicles. In May, we have done 1,900, we did not produce 1,900. Production was close to 1,500 only. But because we had to keep inventory -- March inventory which has helped us in sale in April-May. So, once we have capacity in place, maybe we do not need to build capacity in advance. That will be the advantage.Anuj: Do you still have inventory though?A: No, that gets liquidated in Q1. That is why you see the sale of 4,893 in Q1, production is not that much. So, we build inventory in March. So, that is how it works.Sonia: So, do you think it can sustain this 20 percent growth, 25 percent growth in quarterly sales volumes that you have seen in this quarter? Also wanted to get some thoughts from you on the school bus segment, which has been doing very well across the board, what kind of demand pickup are hoping to see since you specialise in that segment?A: I cannot put any specific number to it, but we are looking at a good growth over the next 5-10 years.