Management QnA - Richa Industries Ltd.

RICHA INDUSTRIES LTD

  Richa Industries Ltd posted on the blog at 33 on 22nd January 2015.

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We got in touch with Mr Sandeep Gupta (Joint M.D. of Richa Industries Ltd) for the Management QnA

Q: Whyare raw-material costs so high? Isn't there any substitute to the raw materials or a way to reduce the cost by changing the supplier or by manufacturing?

A: In our business raw material is a major component as steel is the base and all the value additions are on steel only except the cases of Turnkey where now civil has also start playing the role. It’s a volume business. On manufacturing front there is not much to reduce as we are already doing our best however as the volume are growing we are now in a position to enter MOU with steel companies. From the current year we have start working with SAIL so we are exploring all opportunities availed to us to reduce the same. We are also quite hopeful that this should come down by 2-3% during the current year.

Q: As we have seen on ZEE Business, The company is going to reduce the textile unit to 30% and there have been news in the past regarding sale of the textile unit to reduce debt, I want to know what has been the progress in this and whether are you considering converting the textile unit into technical textile as the prospects for that look good?

A: We are not reducing the operations of Textile Division and maintain per say on the same. In fact increasing the same with the new Govt putting focus on Textiles. However as our volumes of construction & engineering division will grow, Textiles share will reduce to 30-35% gradually. This year it should be around 40% of our total sales. Technical textile is a different line and need lots of investment again so we are studying it but not yet decided anything on that. Growth or Expansion in textile will depend upon how Govt of India take forward this sector. However we are comfortable at the current levels of operations.

Q: Your long-term loans decreased but the short term loans increased? Is short-term borrowing used to pay off long-term loans?

A: Long term debts have been paid and one year coming installments has been shown under current liabilities as per new balance-sheet format. So we have not paid long term with short term however it’s a representation as per new formats. Also some short term funding has increased but that too on account of working capital and not for long term debts.

Q: Loans have reduced but finance costs have increased even though there has not been a significant hike in interest rates, What is the reason for that?

A: Finance cost has increased due to the increase on charges for LC’s & BG’s for orders and full utilization of borrowings. Also the cost of funding was at little higher then the previous years but this year we are hopeful to bring the cost of funds down by improving the ratings. Also as the Tuff subsidy share is decreasing due to loan repayments the effective cost becomes little costlier.

Q: Please provide an outlook about debt, Your sales are around 300 crores and your total debt is quite high at around 180-200 crores.. How are you going to reduce the debt? Though you have said in past that Debt will be paid off with the profits made, But almost 60% of the profits are going into interest costs. If we get rid of the debt the bottom line would have been 35 crores or so. Peer company Pennar Industries has a top-line of around 1300 crores and they have similar debt levels as Richa. While you have only 300 crore top-line but 180 crore debt. So if Pennar can show 1300 crore top-line with just 180 crore debt we too definitely should be able to reduce our debt?

A: We agree that our debt levels are little higher in comparison to our sales figures. However we are hoping to increase our top line by almost 50% without increasing much on debt sides. We have the order books and reached at the level where we will start booking good top line. With increase in top line major concerns over debts will be taken care also repayment of the same will come by the margins as cost will not increase much. Also approx. 15-20 crores out of this is used for BG for tendering and EMD purpose which effectively does not come into the fund flow.

Q: Kindly give guidance or expectations for FY16 (Top and Bottom line growth)

A: Top-line should be around 450 Crs with 250-300 crs coming from C&E. Bottom line we look forward for 20 Cr plus and can increase further if interest rates goes southward as the talks are going on.