Pick-up in auto industry to aid metal pdts biz growth: Tube Inv

Tube Investments reported strong volume growth in bicycles segment on back of government orders, especially from West Bengal government, says the company’s Managing Director, L Ramkumar. The company’s revenue improved 14 percent to Rs 1,710 crore and profit after tax (PAT) rose to Rs 725 crore against Rs 111.5 crore quarter-on-quarter. Profits were boosted by exceptional gain of Rs 725 crore on account of profit on sale of its Choldmandalam general insurance joint venture to Mitsui Sumitomo. In FY17, Ramkumar expects a 15-20 percent growth in general insurance business and 8-10 percent volumes growth in cycles and engineering business. Metals formed products business will see a double digit volume growth in FY17, he says adding that it will benefit from visible pick-up in the automobile industry. Below is the transcript of L Ramkumar’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Sonia: Your cycles and accessories business has done quite well in this fiscal. You have seen. You have seen a 14 percent volume growth. Is that something that you can replicate in FY17 as well?A: Frankly, part of that is due to some orders we got from the government, especially the West Bengal government which was not there the previous year. 20 percent of our business came from the government institutions, which I cannot say would repeat unless this happens. The trade part of the business was a little muted. Overall the volumes did go up compared to the previous year and that is why you see a growth in the revenue and the profits as well. Latha: On a year-on-year (Y-o-Y) comparison, your numbers are lower, obviously, because you do not have the Cholamandalam general insurance business. How much were you earnings from that business anyway?A: Actually, you are talking about consolidated results. Our Y-o-Y is down, because of the Cholamandalam Finance which was a subsidiary of our company, the previous year and it ceased to be a subsidiary the last year in August. So, it is not a comparable thing. Cholamandalam Finance, by itself has done very well. It has grown in terms of the topline, the profits, the disbursements and everything. They have grown in their profits, something like 30-35 percent during the last year, fiscal 2015-2016.Latha: I just want to know if you can give an adjusted comparison Y-o-Y as well because clearly, the quarter-on-quarter (Q-o-Q) numbers look good, but Y-o-Y, adjusted?A: I may have to do my arithmetic. Basically, we dropped our percentage share by 3-4 percent by which it ceased to be a subsidiary. But comparable basis, the numbers will be far better, because they did 30 percent more profit and we will get a share of it as well.Sonia: So, on a base of Rs 8,000 that you are sitting on, in terms of consolidated revenues for the group, what kind of growth do you envisage in FY17?A: The Cholamandalam Finance business is growing very well. We expect to grow with the pickup in commercial vehicles market. It could grow by 15-20 percent. The insurance business has also done well. They grew by around 15 percent last year. We expect the same growth of 15-20 percent. On the base business of engineering, bicycles, etc. this year we grew by 3 percent. We hope the year 2016-2017, we could grow probably by anything between 8 and 10 percent in different businesses.Latha: Of the three businesses that you now have, the manufacturing businesses, cycles, engineering and metal, can you give us sector by sector, what kind of revenue or volume growth you can see in FY17?A: In the case of bicycles, we have been growing at the range of 3-5 percent. The market has not been very good, but we are making some special efforts in terms of marketing. In the case of engineering, we could see a good growth in the current year because in the year 2015-2016, we commissioned a new plant which is not fully up and running. It is getting stabilised during the current year and there should be a significant growth in terms of turnover and profit in this particular division. In the case metal formed division again, this link to automotive, and we do see a pickup in automotive and if passenger car segment and two-wheelers grow as well as they have done in March-April, we could see a good growth in double digit in this particular division.Sonia: So, from a 7 percent volume growth in FY16, you are forecasting a double digit growth in the metal formed products business in FY17?A: It is possible with a little pickup in the auto industry.Sonia: So, will that result in higher margins for you on an overall basis as well because your margins for the last couple of years have been hovering around the 11-12 percent mark. I get it that there are many cost pressures competitive pressures as well, but is there any way you can leverage your margins on the upside above these 11-12 percent levels?A: One of the reasons for the margins getting depressed is the investment of Rs 250-300 crore we made in a new project which has been there since 2014-2015, we started the investment, 2015-2016, we completed. The revenues of that will start coming from this year. So, that had an impact in terms of depreciation, interest, etc. but not much revenues. That will have an impact in terms of improving the margins. Second one is overall growth itself, gives you advantages of scale and then that has a positive impact on margins.Latha: Overall, do you think that because of the lower commodity prices, basically, at an earnings before interest, taxes, depreciation and amortisation (EBITDA) level, you can grow better? What is the EBITDA level growth that you are expecting?A: It should be better than what we have done. We do not normally give out guidance in terms of numbers. But, commodity prices being depressed has not fully helped us because most of the cases, we had to pass on the same to the customers. Most of our end customers are automotive components and automotive companies, so they are all the time looking for these reductions. We are really improving our margins through higher volume as well as good programmes and cost reduction within the company.Sonia: You did mention that you got this big order from the West Bengal government and that boosted your volumes in the bicycle business. What do you think an average volume growth could be for the bicycle business in FY17? I know 14 percent may be too high, but what is the expectation?A: It will be a moderate 2-3 percent. Without the West Bengal order, we could grow by 2-3 percent. I just wanted to tell you that in the bicycle business, we constantly look at the mix of the products, so there is a lot of enthusiasm for high-end cycling, etc. the proportion of which is growing, which could definitely have a positive impact on the margins.Latha: Are you seeing any signs that FY17 will turn out to be better than FY16 in terms of orders, demand, activity?A: Actually, on the ground, surprisingly, as you might have seen the auto industry has done well in April. We see the same trend continuing in May also, for more order book. This trend continues, it will be very good for this year.Sonia: Just to come back to the Cholamandalam business, you sold 14 percent back to your joint venture partner, right? Are there plans to sell any more in this calendar year itself?A: No, nothing immediately. That is in the business of insurance, Cholamandalam Insurance. We did sell to our partner Mitsui Sumitomo.