Rise in container vol will improve margins: Gujarat Pipavav

Gujarat Pipavav Port expects margins to improve going ahead provided there is increase in container volumes and cost efficiencies just like it saw in quarter-ended September, says CFO (APM Terminals Pipavav) Hariharan Iyer.

Speaking to CNBC-TV18 he says the company's business is such that large part of the cost is fixed cost and therefore, any increase in volumes (container) will directly translate into better margins. 
Gujarat Pipavav reported an over five-fold growth in post tax profit at Rs 44.1 crore for the third quarter ended September 30. Below is the verbatim transcript of Hariharan Iyer’s interview on CNBC-TV18 Q: Your margin expansion has taken the street by surprise this time and despite a higher mix of low margin up country coal, could you tell us what worked in favour of the company and led to this kind of margin expansion?
A: The increase in container volumes mainly contributed by better realisations in containers as well as cost efficiencies were the key contributors for increasing our margins during this quarter. USD tariffs as well as favourable Indian rupee, US dollar exchange rates have also helped in improving the earnings before interest, tax, depreciation and ammortisation (EBITDA) margins. The company also rationalised the rate structure during mid August 2013. Q: A key concern on the street is, are these margins sustainable? What are the levels for FY14?
A: When we see this level of container volumes coupled with bulk volumes at current levels, we expect that margins would also improve. Our current container business is such that predominantly large part of the cost is fixed cost. So any increase in volumes directly translates into better margins. Q: Container volumes have seen a sharp bump up in this quarter especially on bulk volume side. What led to this sharp spike? Is it on account of just seasonality or are we seeing some fundamental changes?
A: As far as container volumes are concerned, over a period of time we have added new services. Some of the existing services have also upsized their vessels. When you look at the second half of the calendar year Q3 and Q4, you will find there are seasonal impacts also playing in. For example, in this particular quarter, imports increased by 19 percent and exports increased by 11 percent, on the back of festive season imports into India and Christmas season exports to Europe and US. We see this kind of volumes in Q3 and Q4. Q: This is the first time in many quarters that the company has paid tax. What is the run rate on tax outgo that we can expect for the balance of FY14?
A: At least for the next few years, while we will be paying tax, we also have the ability to claim the max tax credit. Therefore, the effective tax rate for us would be zero. However, from a point of view of cash flows we will continue to pay tax at 20 percent on the MAT. Q: The clearance from the National Green Tribunal (NGT) is critical for your expansion plan. What is the status on this case - has there been any movement post August 22, can you update us on the same?
A: The next hearing is scheduled on October 28, only after this hearing we will be able to provide more details on this. Q: The company had put on hold its USD 152 million ongoing capex program due to clearance issues and had funds tied up for the same. Could you tell us the final capex plan for FY14?
A: USD 152 million is the total external commercial borrowing (ECB) funding that we have currently tied up with. However, we haven't drawn anything from this new funding. These arrangements are towards the expansion program. The NGT matter is still under hearing and as soon as we hear from them we will be able to chalk out the plan going forward. Q: Most analysts have increased their earnings estimates post this strong performance. What are you guiding for FY14 in terms of top line and bottom-line growth?
A: Overall, the market in the north-west region has grown roughly about 3 percent. Generally, a very subdued level as we have seen over the last one-two years but Gujarat Pipavav has grown 13 percent in the same period. If we continue to keep that trend then we see similar kind of developments going forward in the coming quarters as well.