Will continue to have double-digit growth next year: Welspun

In an interview to CNBC-TV18 Altaf Jiwani, CFO at Welspun India spoke about the company's second quarter performance and outlook for the coming quarters.Below is the verbatim transcript of Altaf Jiwani’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: We all know that you were going through some problems now and more clients are now cancelling orders, at least that is what we get to know maybe even Bed Bath & Beyond for example the latest one. What is the current situation in US? A: We have had actually a quarterly revenue of Rs 1,790 crore which is 21.8 percent higher than the last year corresponding quarter which is predominantly based on the volume increase and we have seen an EBITDA margin of about 24.1 percent which is about Rs 438 crore. We have had actually profit before tax (PBT) of about Rs 298 crore before exceptional items which we have mentioned to and we had an exceptional item -- one time exceptional provision which we have made which I will come to that -- after that we had a profit after tax of Rs 147 crore of loss. The news relating to Bed Bath & Beyond, all the customer is continuing with us. It is only program which is less than USD 3 million which has been discontinued with them. So, all our customers except one are continuing business with us all over the world. So, there is absolutely no problem on the customer relationship except for the one which happened in the month of August. So, for us the business continues with majority for almost all of them.Sonia: There was some news reports on Friday which suggested that Walmart also said that it would stop selling the Egyptian cotton sheets that you guys make; is there any truth to that report? A: The Egyptian cotton bedsheet, each of the retailers are looking at their own internal compliances and we have started supplying now gold standard accredited Egyptian bedsheets which is given by a third party cotton Egyptian association from Egypt. So, most of the retailers are now switching to the third party accreditation. So, as we speak, we continue to supply bedsheet which are with gold standard to majority of the retailers. Anuj: You will have to make lower adjustments or you will have to make your earnings forecast a bit lower if you do make internal forecast. Do you think over the next three or four quarters you will suffer more and you will report more losses over the next three or four quarters?A: We have estimated all the provisions relating to the traceability issue and we have provided for that in this quarter i.e. Q2 and we believe that this will take care of all the cost except for the class actions suit which is premature. It is a very premature stage right now because whether the class will get admitted or not itself is a question mark right now. So, overall just to give perspective, the Egyptian cotton was roughly about 6 percent of our overall revenue. So, that was not very substantial in terms of revenue. Currently, we are continuing to supply the Egyptian bed products also. This year as I mentioned to you, in Q2 we have seen about 22 percent growth which is predominantly volume driven. First half (H1), we have seen a growth of 18 percent. So, for this year we will see a double digit growth which we had guided for. Next year on the continuing business, we will continue to have double digit growth but next year’s growth will be muted compared to this year’s growth. Sonia: Just wanted to know that you had made a provision of Rs 500 crore this time around, why has the provision been so high? A: This provision is based on our estimate relating to the traceability issue,  all relating to this refund to the customers, the returns from the customer, inventory write down, legal expenses and all related expenses. We wanted to take it up front in this quarter so that there is no lingering effect or legacy issue in the subsequent quarters. Sonia: Have you made any more provisions for the next couple of quarters. I am just trying to understand whether you are expecting any more refunds or there could be a possibility of more refunds in the coming quarters? A: Based on our current estimate and current knowledge, we have gone ahead and made the provision for all that but of course this provision will throw up every quarter end but in our view, based on the advice which we have received about the refunds, in such cases also we have gone ahead and made the provision. Anuj: If you could break up this provision of Rs 500 crore because it is only a USD 3 million client so if you could breakup this Rs 500 crore in terms of legal expenses, if you are accounting for a class action as well and refunds and all, if you could give just a bit of a break up of this Rs 500 crore.A: As I mentioned, this is an estimate so as we go along we are working closely with our customers to work towards this. So, it is over next two to three months we will actually get complete clarity on that. So, by end of this financial year we would have complete breakup available for this. Anuj: It could go up as well; you could need to make more provisions as well?A: We believe that we have taken care of whatever we know as of now. So, these estimates should be good enough to take care of the future provisions requirement also. Sonia: Have you scaled down your capex plans, earlier you had a projection of Rs 800 crore for FY17 but things have gotten a bit sour for you over the past few months. So have you scaled down that capex? A: Our capex plans, you are right, which we had guided for Rs 800 crore. So, we have already spent about Rs 450 crore out of that in the first six months. Going forward we would be incurring about close to say Rs 250-300 crore. So, roughly about Rs 100-150 crore out of this capex will get spilled over to the next year. As we have guided, our capex, we will always calibrate based on the depreciation and the cash flow available. So, that is roughly about Rs 100-150 crore which will get spilled over to the next year.