Manjushree Technopack Limited reported a weak set of earnings for July - September quarter. In an interview to CNBC-TV18, company MD Vimal Kedia spoke about the financial performance of the company in the quarter gone by and the road ahead.
According to him, cost pressure and competition impacted margins in Q2 preventing any price increase. Although plunging crude prices will eventually reduce raw material cost price, company's margins could remain under pressure, he adds.
Going ahead, he expects Manjushree Technopack to post a 20 percent revenue growth in FY15.
Below is the verbatim transcript of the interview:
Q: What went wrong in this quarter? I believe that at least on the top line you have shown a good growth of around 25 percent but on the operating margin front its come down to sub 20 percent. Why did we see this margin compression?
A: There as been a cost pressure towards the material as well as the manpower over the last year. The power tariff also has been increasing. There is a competition in the market in our area of pet bottles that we manufacture from the small people and unorganized sector. The customers are not willing to increase the prices hence we see this downtrend. However we are trying to do our best to bring down the other cost and we look forward for a better quarter in the third and fourth quarter.
Q: Are you still facing these higher cost pressures, increased competition and inability to raise your prices even in Q3 quarter? In Q3, what would your margins look like. Is there a scope for it to improve or will it come under further pressure?
A: We can't say correctly but it's under pressure because there is a huge competition over last two years. Large capacities have been built in the preform segment, which we supply to beverages majors and when the supply is more the buyers get a chance not to increase the prices and still try to buy at a lower price. However, with our quality and other parameters we are trying to increase the profitability by increasing the prices, which again is resisted by the customer.
Q: We normally look at it on a year-on-year basis but what went so right that in quarter one your numbers were looking absolutely blockbuster. Your topline was a good Rs 170 crore; your margins were around 22 percent, the profitability jumped up. What was so different in the first quarter of this year and what's so different in the second quarter?
A: Normally ours is a seasonal business also so the first quarter is always better than other quarters and due to higher sales the profitability increases. However if you compare the sales over the last quarter the sales are down by almost 20-25 percent and this is a normal feature. However there is a pressure on the cost that I already explained to you, which we are trying to solve it by many features and many actions taken by our end and try to increase the profits by increasing the prices with all the customer.
Q: How soon could you increase your prices?
A: It's revised with our customers normally once in a year but this year there is a lot of resistance because the fast-moving consumer goods (FMCG) market also is not reacting very positively.
Q: Just want to ask you at the halfway mark you have done close to around Rs 275 crore and it's seen a good growth of around 35 percent on a year-on-year basis that is at the halfway mark. Here you have been doing a 30 percent compound annual growth rate (CAGR) over the last few years is that possible this year and if that happens then will you be closer towards Rs 550-600 crore on the topline?
A: We should be able to grow by 20 percent over last year because of a larger base. We don't think we can cross Rs 550 crore however always the ambition is to get more and more but then we can't say if there are orders in the last quarter once we start the onset of decision. There may be improved numbers.
Q: So 20 percent revenue growth is what you are forecasting for FY15?
A: Right.
Q: Can you tell us little more about the promoter holding in the company. Where does it currently stand at, are the promoters looking to increase their stake. How much of they already bought by the creeping acquisition route?
A: Promoters are holding 71 percent as on today. In the current financial year we increased it by two percent last year it was 69 percent. We don't propose to increase our holdings at these prices because the prices are abnormally high. So we still hold the majority so we don't need to increase our shareholding further.
Q: What is your total capacity at present? I believe that there was an addition of around 20-25 percent so what will that mean in terms of numbers may be in the next couple of years?
A: At present our rated capacity is 80,000 metric tonnes and last year we achieved close to 70 percent that is about 60,000 metric tonnes. This year we should be doing about 65,000 to 70,000 metric tonnes and as per the sales growth the capacity also will be utilised with the built up of our last plant year before. There is a pressure on the margins because of higher debt and that should come down in times to come.
Q: How does the falling crude price benefit you all and how will it show in your profit and loss (P&L)?
A: Falling crude prices definitely will reduce our raw material prices in due course but the raw material sellers have a habit of increase the price immediately when it goes up but when it comes down they slow it down they don't give us the effect which actually should have been given. Although the international markets are down, we are not seeing the effect in India.
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