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Last Updated : May 18, 2016 05:10 PM IST | Source:

Profitability won't slip on crude increases: Emmbi Industries

Margin contraction in the fourth quarter of FY16 could be attributed to an increase in crude oil and polymer prices, says Makrand Appalwar, Chairman and Managing Director of Emmbi Industries.

Speaking to CNBC-TV18, Emmbi Industries' Chairman and Managing Director Makrand Appalwar said he wasn't disappointed by the company's margin contraction in the March quarter to 12.6 percent from 14.2 percent in the year-ago period.

"The (margin) decline may be due to the increase in crude oil and polymer prices. In the December quarter (third quarter) there was a steep increase; so this quarter (fourth quarter) had more of rationalised sustainable and profitable margins," he said.

Appalwar said the increase in crude oil prices in April and March won't affect the margins. "Our profitability isn't related to crude oil prices. So, I don't think we are going to have an impact in the first quarter of FY17 or this year," he said.

The company is also changing tack, moving away from packaging to advanced composites, agriculture products and water management, he said.

The company's revenues in fourth quarter of FY17 grew 14 percent to Rs 56.3 crore against Rs 49.4 crore in the year-ago period, while net profit rose 27.6 percent to Rs 3.7 crore. For FY16, revenue stood at Rs 208 crore, up 13 percent from Rs 184 crore in FY15, while net profit rose 76.7 percent to Rs 10.6 crore in FY16.

Below is the verbatim transcript of Makrand Appalwar’s interview with Mangalam Maloo & Reema Tendulkar on CNBC-TV18.

Mangalam: We saw a bit of a decline in your margins from 14.2 percent to 12.6 percent in this quarter itself, any particular reason for that because earlier you had indicated that one can see improvement in your margins coming by?

A: May be this quarter we have seen a slight increase in the crude oil prices and polymer prices going up. So, that has gone and it is more of a rationalisation. If you see complete year-on-year margin, there is almost 2 percent growth in the EBITDA and close to 76 percent growth on year-on-year margin. So, there was a steep increase in the last quarter, so this quarter was more of a rationalised and more sustainable profitable margin what I felt that is why there is a small change in the last quarter margins.

Reema: You indicated that it was the increase in crude oil prices as well as polymer prices which could have hurt your margins. In fact even after March in the month of April and May we have seen a further increase in crude oil prices so does that mean that the margins will be weak even in the coming quarter?

A: What I was trying to say is the rationalisation came in the last one whole year. If you see a last quarter of a previous year there was some unprecedented change in the polymer price that changed the market. So, in this whole year it was very stable. Our profitability is not directly related to the crude oil pricing. So, I don’t think we are going to have any impact in the quarter one or even this year rather we are targeting a further improvement in our profitability coming into this year.

That statement was pertaining to very specific reaction what happened last quarter four and this quarter four. I don’t think our profitability is anywhere related directly to the crude oil price but that one quarter was something which acted in a very different way than most of the time industry has acted.

Mangalam: You had indicated that you are moving away from commoditised business to specialised business. Give us some numbers, what proportion of your revenues currently comes from the specialised business and what is the margin differential and what is your target ratio of specialised business to commoditised business and eventually what would that do to your numbers?

A: Our products are divided into mainly four verticals, specialty packaging, advanced composites, agri products and water conservation products. Out of that advanced composites are semi speciality products. Water conservation and agri products are completely speciality products and packaging is kind of a commoditised.

Mangalam: Give us a margin break up of all these products?

A: 42 percent odd is in the range of advanced composites, 15 percent is around agri products and around 4 percent is water conservation and close to 35-37 percent is in the packaging sector. What are we doing is moving away from packaging going into advanced composite, going into water conservation, focusing more and more on the agri. When it comes to our EBITDA differential, you can say that all our speciality products get us closed to 400 basis points higher than the general packaging products. So, this movement is helping us.

If you see on year-on-year the increase in EBIT is around closed to 2 percent and that is purely because the increase of value added product share in the entire contribution of the company’s balance sheet.

Mangalam: What we are trying to get to is the fact that in the last one year your stock has moved five times however, in the last five years while your revenue growth has been 28-29 percent, in FY16 it has been just above 13 percent. So, where will the next leg of growth come by from and will it justify the kind of rise that we have seen in the stock price because you do indicate that everything will come from the specialised business and margins will improve. Could you give us some numbers; could you give us a clear growth plan for the next three years?

A: If you see around five and five and half years back we came up with the IPO and that was the time we were setting up the facilities and manufacturing factories and everything. After the set up of new factories which we did in last four years if you see last two years the new products have started coming in the market. Now we are completely ready with everything including the market, product development and everything.

So, these are the numbers and we are targeting a compound annual growth rate (CAGR) of around 20 percent for next three and a half to four years. That means the company would double itself in next 3.50 to 4 percent on the revenue side. We have seen typically, what is happening quarter-over-quarter in last eight quarters that whatever improvement in that revenue around 1.50 times is the improvement in the earnings per share (EPS) or you can say bottomline.

So, that is how I feel that in next three year probably three to three and a half years company should be able to double itself. So, we should be able to keep this pace keep this growth. We have kept a CAGR of almost 29 percent in last five years. Now we are targeting in next three to four years around 20 percent.

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First Published on May 18, 2016 02:55 pm
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