Suresh Kalyan, CFO, Amara Raja expects to maintain margins at 17-18 percent in second half albeit there is no pricing moderation. The auto parts and equipment makers has reported strong results for the second quarter ended September 30, 2013 (Q2), beating analyst estimates, led by continued expansion in operating margins.
The EBITDA margins expanded 133 bps sequentially (124 bps yoy) to 17.6 percent led by price increases and superior product-mix.
Kalyan is confident of maintaining double-digit growth for the second of the year. "We definitely believe that we would have improved the market share," he told CNBC-TV18.
Below is a verbatim transcript of the interview on CNBC-TV18
Q1: This time around you have seen a significant expansion in your operating margins because of the price hikes that you undertook as well as good replacement sales. In the second half of the year do you think you could hold onto these margins of around 18 percent or do you think you could scale well above that?
A: The performance in Q2 was against the backdrop of good volume growth in the automotive aftermarket, both in four wheeler and two wheeler as well as we grew in double digit in the telecom business. The margin expansion is primarily on account of overall improvement in the quality of the business both in terms of internal efficiency and pricing actions in Q2 as well as sometime in Q1. with regards to the margins as far as H2 is concerned we believe that if there is no moderation in the pricing warranted by the market actions by competition we would be in a position to maintain the margins of around 17-18 percent EBITDA, but if there are compulsions to moderate the prices we would probably go back to the normal levels of 16 percent.
Q: What is the level of demand and therefore in the second half will you do better on sales? Revenue was a bit disappointing for some of your investors.
A: Revenue was not disappointing. Revenue needs to be realised from manufacturing point of view as well as the trading revenue separately. The trading revenue was disappointing because of unfavourable season for our home UPS segment. It is the trading revenue for us. As far as manufacturing is concerned we grew 16 percent Y-o-Y, but it is a bit flat compared to Q1 for want of capacities. We are gearing up to expand our capacities.
The capacities would come in place in Q4 and hence the capacities will support us to grow in double digits. But as far as the demand is concerned, we see quite a bit of a slowdown in automotive production and we have also seen a very sharp decline in the demand from home UPS segment because of unfavourable season. We have also seen a slowdown in the demand for industrial UPS because of the economic challenges.
Q: So even this 12 percent revenue growth maybe tough you are saying?
A: We will definitely have double-digit growth in H2.
Q: Can you give us a sense of what the market share currently is? Where does Amara Raja stand and what is the market share of your peers like Exide?
A: I did not say that we would expand the margins the further, but I said that we could maintain the margins if there are no moderation in the prices. But as far as the market share is concerned, we definitely believe that we would have improved the market share. But we do not track the market share on a Q-o-Q basis. I will probably let you know by year end.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
