Weak H1 on expected lines; see improvement in H2: Praj Ind

Ethanol plant major Praj Industries reported a consolidated total income from operations of Rs 203.05 crore and a net profit of Rs 4.75 crore for Q2. Speaking to CNBC-TV18, CEO & MD Gajanan Nabar, says the weak H1 came on expected lines due to seasonality.

Nabar expects H2 to outperform H1, adding that the company has seen a 6 percent increase in variable margins.Below is the transcript of Gajanan Nabar’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.Nigel: The numbers do not look that great, clearly there is some problem with execution because order book is moving higher, but it is not reflecting in the numbers.A: Sales numbers are not pretty good but we had already mentioned this to our investors that our first half is going to be a little soft. What we are looking at is a very good order book and it has come from all our businesses including some of the emerging businesses have contributed, so that we like. We also have some international orders, which we have won from Argentina and Europe, which gives us a good feeling about the margin profiles and Indian ethanol industry is doing pretty well from the push that government has given on bio fuels programme.So, we already have shared with the investors that the second half would definitely be better, which is always the case, that our H1 is slightly softer, H2 is better. Even this we would repeat it this year. We should not just look at this quarter’s sales numbers and, it is not a qualifier.Reema: When you say H2 will be better, does it mean that there will not be degrowth, you will have some revenue growth, if yes, what could be the extent of that, high single digits, double digits?A: Statement of facts is that look at our carry forward order book, we always give qualifier of executability. It is executable carry forward order book which looks at least 40 percent higher than the last year’s carry forward order book. That should give some indication to our viewers. Our average execution period is close to 8-9 months, so that should give a good indication, but we are pretty optimistic about our second half.Nigel: Your margins, I remember a couple of years ago, it used to be steady in the double digit mark. Currently margins are sulking at around 5 percent, so yes, we could see a pick up in revenues in the second half of the year and going ahead, you are sounding quite confident as well and it appears your investors that they as well are looking at that, because the stock has recovered a good four percent from the day’s low. Can we see margins pick up back towards that double digit or at least higher single digit?A: Again, let me do a little bit of analysis of the numbers. I think the variable margins -- that means all variable costs together, not just gross margins -- have improved over last year’s 24 percent to close to 30 percent. So, there is a six percent increase in the variable margins.What has of course not helped is the total overall sales. Even despite the mix which is international is only 33 percent which normally in our case is about 50 percent – we have 45-50 percent of international sales which obviously has better margins – despite of that, margin at variable level looks pretty good and that is what we like.As you see the traction on sales numbers come in, you would see the margin expansion happening.For entire discussion, watch accompanying video...