Vikas Ecotech's EBITDA margins fell to 21.6 percent from 23.7 percent in the fourth quarter of FY16. Vikas Garg, managing director of the company, said he expects EBITDA margins to be sustainable at around 22 percent in FY17. The company has enhanced its capacities, doubled exports, and made efforts in the R&D space to increase the margins, Garg added. "The company should grow at a compound annual growth rate of 35-40 percent in next 3 years," he said. Vikas Ecotech manufactures high-end products used in plastic, rubber, footwear and packaging industries. Below is the verbatim transcript of Vikas Garg's interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.
Mangalam: We saw a sharp rise in your margins year-on-year but quarter-on-quarter there was a big decline, in fact your EBITDA margins came off from 23.7 percent to around 21.6 percent. What is the sustainable level of margins that the company can expect going forward?
A: The sustainable level should be around 20-22 percent.
Mangalam: What will lead to the margin improvement?
A: There are many factors like the enhanced capacities have started paying off plus more emphasis on exports. We have almost doubled our export during the current financial year. There were some research and development (R&D) efforts which were ongoing for the last few years, they have started paying off. So these were the few factors which have contributed to increase margins.
Reema: What about the topline growth. FY16 revenues went up by 50 percent. Now that your base is a lot bigger, can we continue to expect this run rate in revenue growth rate?
A: We are expecting to grow at a compound annual growth rate (CAGR) of around 35-40 percent over next three years. This is our conservative estimate.
Reema: All organically?
A: Yes.
Mangalam: This revenue growth will come back from where. Can you break it from your manufacturing division as well as your trading division because both of them contribute to your revenues?
A: At present the revenue breakup is 80:20; 80 coming from manufacturing and 20 coming from trading including merchant trading. Our emphasis is more towards manufacturing, so maybe down the line somewhere the trading should get decreased to 15 percent and manufacturer will give us more impetus on revenues and profit generations.
Mangalam: You have capex plans of about Rs 20-25 crore coming by over the next two years. How is that going to be funded?
A: That should be from internal accruals and the banks.
Mangalam: Could you tell us where exactly this margin growth will come from because you are into chemicals trading and at the same time most of your products are commoditised products. How will the margin growth come by?
A: We are not into commodity chemicals. We are into speciality chemical sector and we are doing a lot of R&D and our products are also very niche, not manufactured in India. So there are multiple reasons. We keep on using special technology to use recycled and post industrial products to upgrade their quality to prime levels - those few factors, R&D and our increased exports will give us impetus increase in our revenues and profit margins.
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