The hit on margins seen in Q3 was basically because of transition in product mix and rising material costs said Sameer Nagpal, MD & CEO, Shalimar Paints. However the company is now shifting the product mix from low margin based products to higher margins based products.
Going forward not only are they speeding up the transition process but are also focused on looking at geographies that would give higher margins in the coming quarters, said Nagpal
Shalimar Paints today reported 67.16 percent decline in net profit to Rs 1.54 crore for the third quarter ended December 31, 2013, due to rise in raw material costs. The company had posted a profit of Rs 4.69 crore in the same period of previous fiscal, Shalimar Paints said in filing to the BSE.
The company is also looking at a change in distribution mechanism, it is also working on its branding plus they have a new management team in place to help the transition. All these costs will impact their margins to some extent going forward.
Below is the verbatim transcript of Sameer Nagpal's interview with Sumaira Abidi and Anuj Singhal on CNBC-TV18
Q: Third quarter seemed to have been really bad for you – your EBITDA was down, profits were down 67% despite stable sales? Was this a one off?
A: Basically we are trying to change our product mix from solvent based products, which have low margins to water based products that give higher margins. This transition is making us sacrifice some of our growth and that is why the sales were flat.
We have formed a new management team to help us with transformation of this organistaion and that is cost which has hit us this quarter, which has resulted in poor margins.
Q: This entire transformation of product mix, management rejig etc by when will it be completed and when will you see rationalisation in your performance?
A: It could take a couple of quarters because we have a very penetrated spread out business and all the functions are structured to serve a particular market. We are changing our distribution mechanism, our production capacities, also working on our branding. So there is lot of parallel work going on.
Q: Are you saying market should be prepared for such nasty shocks for the next two quarters – a drop in profitability by about 50-55%?
A: No, I am not saying that but I think the change will take some time. We are accelerating some of our actions, so that the impact would be minimised and also focusing on geographies that give us higher margins for this and the next quarter.
However there will be some impact but it may not be this severe.
Q: You had taken some price hiked in Q2 and so perhaps we could see some impact of that in Q4 and along with your focus on higher margin geographies – could you give us a sense of how margins will trend going forward?
A: Margins compared to last year were impacted by significant cost increases that happened over the last 2-3 quartesr, all of which have not been covered till date. So while we are looking at some more price increases in the coming month. So hopefully that will make the numbers look better.
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