Oriental Carbon & Chem explains why effective tax rate is higher

Speaking to CNBC-TV18 Anurag Jain of Oriental Carbon & Chemical said that the demand was better in first quarter was better than the previous quarter. In the last quarter, metal prices hadn't fallen which had fallen now. A 5 percent topline augurs well, he said, after adjustment of raw material prices.

He also said he expects a better capacity utilisation this year. The company's turnover was Rs 275 crore last year and he expects to do well this fiscal year.

The company had closed down a loss-making unit of a subsidiary. He believes that margins may not improve in the short-term because of closure-related costs. Going forward margins in the subsidiary will improve from negative to positive, he said.

The effective tax rate for the company is higher this year. Explaining the reason, he said that the company has a unit in a Special Economic Zone, which was enjoying 100 percent tax exmption. Now it is 50 percent exemption and so the provison of tax is higher, he said.Below is the verbatim transcript of Anurag Jain's interview to Nigel D'Souza on CNBC-TV18.Q: Topline growth of only around 5 percent or thereabouts. Could you tell us what exactly was the utilisation level in the last quarter and also could you tell us was demand weak?A: The demand was better than the preceding quarter as there was a 9 percent increase from the preceding quarter and also the last quarter. In the last quarter, the raw material prices had not fallen, which had fallen now and therefore the 5 percent growth in topline augurs well, because it is after adjustment of prices of raw material, which had fallen.Q: What was the utilisation level could you tell us?A: We do not tell the utilisation levels.Q: Last time you were functioning at around 90 percent you told us when you joined us the last time around, so this time is it higher than those levels, what was the average for the last quarter we just want to understand that particular.A: We expect a better capacity utilisation this year than last year.Q: Last year you did around Rs 340 crore or thereabouts, so this year you have done a 5 percent growth in the first quarter, so for the rest of the year as well you believe that you can do 5-10 percent growth in terms of revenues.A: Rs 340 crore that you mentioned is of course the consolidated turnover, which includes our subsidiary Schrader Duncan Ltd (SDL), so it will be difficult for that to increase because in our subsidiary we have closed down our loss-making unit. As far as OCCL is concerned the turnover was Rs 275 crore last year and looking at the current quarter we expect that we will do better than that.Q: You said that you have closed down one of the loss-making subsidiaries, what kind of revenues that loss-making subsidiary used to give?A: No, we have not closed loss-making subsidiary, we have closed a loss-making unit of our subsidiary, Schrader Duncan during this quarter and because it has been closed in this quarter we do expect that the subsidiary turnover would be lower than last year for the current year.Q: But that could help your margins going ahead, last time you did around 24.2 percent for the entire year, so this time you believe it can be better than that. You have already done 29 percent in the last quarter.A: The margins in OCCL are better as far as the subsidiary is concerned the margins may not improve with the closure immediately because of the closure related costs, which has also accounted for the current year. However, going forward obviously the margins in the subsidiary should improve from negative to positive.Q: A coal fired boiler that has come on stream at the start of this last quarter. How much of that positive impact has played out because now for the quarter your power and fuel costs were even sub Rs 8 crore. Is it likely to be a case at least for the next quarter as well in the coming quarters and are you likely to see a further improvement in this, which should give rise to even better margins maybe you can do even 30 percent. Do you think that is possible?A: Power and fuel is not exactly a variable cost, it is a semi variable cost so going forward we do not see any increase in this cost.Q: But can your margins improve to more than 30 percent.A: No, we always give a long-term view of 20 percents in margins and we are quite confident of achieving that.Q: Your effective tax rate this time was around 22 percent that compares to around 13 percent. Why is that any particular reasoning?A: We have a unit in a special economic zone (SEZ), which was enjoying 100 percent tax exemption till last year, currently it is enjoying 50 percent tax exemption therefore the provision of taxes are higher. However, our outgo is only at net levels because we have a lot of net credit left in the company. So our actual outgo is in the net level obviously the provision is little bit higher.Q: You are undertaking a big capacity expansion, but could you give us numbers what is the cash you have in your books, what is the total debt maybe by FY17 and you could tell us, what are those numbers going to look like?A: By FY17 the debt number should not be much different than what they are today.Q: What is that?A: Our current debt is Rs 42 crore and it should increase marginally to about maybe Rs 50 crore or thereabouts.