Sharad Saraf, MD, Technocraft Industries India is confident of a 10-12% growth on the topline and 18-20% on the bottomline for coming 2-3 years on back of growth possibilities from oil and gas sector through their acquired company in Canada, and growth prospects from their scaffolding business in US and Europe. Only the yarn business remains a bit unpredictable, he added.
Technically, Q1 has always been a weak quarter but Saraf is hopeful of good growth prospects from the remaining quarters.
The company's Q1 FY15 operating margins were down 480 basis points at 19 percent versus 23.8 percent in the same quarter previous year. Profit After Tax (PAT) was down 33 percent at Rs 20.2 crore versus Rs 30.1 crore year-on-year (Y-o-Y). EBITDA too was down 3.5 percent at Rs 33.2 crore versus Rs 34.4 crore Y-o-Y. Only total income was up 21.2 percnet at Rs 175 crore versus Rs 145 crore.
Currently the company has about two months of order-on-hand for scaffolding business said Saraf. Basically, for the yarn business the orders are not of a long-term nature
Moreover, throwing more light on the company's dividend policy Saraf said till last year the dividend policy was a bit erratic but now a firm policy has been put in place to distribute certain portion of the income all the time. So, he expects dividend payouts to improve hereon.
"We would expect 25 percent of our disposable income to be distributed to the shareholders," he added.
Below is the transcript of Sharad Saraf’s interview to CNBC-TV18’s Nigel D'Souza and Sumaira Abidi
Nigel: Some of the brokerages are expecting you for the next three years at least to grow on the top line around 10-12 percent and on the bottom-line 18-20 percent. Do you expect to out beat that?
A: Looking at our plans that we have it appears to be achievable and there is no reason why we should not be able to achieve this. We have got growth possibilities in oil and gas sector through our acquired company in Canada. Then we have got good growth prospects in scaffolding business, this business has picked up substantially up in Europe and USA.
Everything depends on our yarn mill which is very cyclical and unpredictable but if everything goes fine which we expect it to, then this kind of growth is not very difficult to achieve.
Sumaira: What exactly is this optimism based on because if we see your Q1 numbers this time, operationally it has not been a good quarter for you, your margins have come down now to that 19 percent mark. What do you think would be a sustainable level for your margins going forward and in the next few years what kind of headroom do you see over here?
A: First quarter is always a weak quarter. However, last year was a different issue. But historically, Q1 is always a weak quarter and that goes for almost all industries.
Secondly, the current Q1 is not comparable with last year’s Q1 because there were significant differences. Last year we had unexpected foreign currency gain of about Rs 6.5 crore. Then we had some profit on asset sale, this made up for that additional profit otherwise operationally the profit is the same. We have got good three quarters left and we should be able to do something similar, I mean improvement over the last year.
Nigel: You were talking about your unpredictable yarn business. In the last quarter in fact on an EBIT level it didn’t give you anything. Do you see that turning around in the next quarter?
A: It has to because it has been at the lowest level now; the only way it can go is up. Situation is changing, cotton prices are loosening up a little bit and we have got some good orders also in yarn. So, hopefully it should go up.
Sumaira: One of the concerns that many analysts have is that there is not a lot of clarity on your dividend policy. Do you want to shed some light on what actually is the policy that you follow?
A: They were quite right till about last year, our policy was little bit erratic but now we have made a firm policy of distributing certain portion of our income all the time. Therefore we expect dividend payouts to only improve over what we have given them.
We would expect about 25 percent of our disposable income to be distributed to the shareholders.
Nigel: Also with regard to currency movement at what rate are you comfortable, at what rate does it gain you and at what rate does it become a bit of a risk to you?
A: It doesn’t go with this logic. What happens is we book orders, say at today’s currency level and when the actual payment comes after three-four months if the currency suddenly appreciates, then we get less rupees and we suffer. But overall now we should be okay because our bookings have now been at 59-60/USD while rupee is well above 60/USD now, and we expect rupee to be about 61/USD. So if it stays above 61/USD, we should be quite okay.
Now on our calculations for the purpose of order booking, we are taking only 59-60/USD as our currency level. So we should be alright.
Nigel: What is your total order book; could you quantify that for us?
A: We have about over two months of orders on hand. In businesses like yarn, the orders are not very long-term; we keep getting orders all the time. For scaffolding we have two and half months of full booking.