Manjushree Technopack Management Q&A: Aug, 2011

Management Q&A

Transcript of discussions with Executive Director, Surendra Kedia

1.     EXCELLENT 1ST QR RESULTS! SALES & PROFITS UP BY OVER 60% AGAIN JUST LIKE 1QFY11.

Congratulations! With such a tremendous quarter behind you, how does the rest of the year look?

Yes we had a good 1st Qr. We should have a reasonably good year in FY11. There is some slowdown in growth in the business on the FMCG side. The high interest rates and inflation is having its affect on discretionary budgets of middle class Indians. Some customers projecting 20% growth are seeing growth in 12-13% levels.

Any major clients added? Besides Coke as your major client, have you been able to penetrate deeper into Pepsi account?

We have grown the Coke relationship. As you are aware we are their #1 supplier. We are also very proud of becoming the #1 supplier for Bisleri. This account started from low levels and as we kept delivering and winning the customer’s confidence we have been successful in penetrating deeper. Pepsi business has also grown over the years, but as you are aware, the dynamics of Coke and Pepsi businesses does not allow the same dominant supplier. We are very hopeful of concluding a significant business on the Containers segment from a major player, shortly.

What about the promising “Beer” segment?

There is some development there. Sab Miller has introduced PET 1 Lt and 1.5 ltr beer bottles. They are experimenting with this for the last 4-5 months. They initially imported the Preforms, and have also used some local suppliers. Volumes coming from this segment is some 1 to 1.5 yrs away still, as this involves major re-investment by the bottler in separate PET lines from the Glass lines.

We will be there surely to pitch in as and when some momentum kicks in.

What about Liquor sales in PET bottles?

This has been going on for last 3-4 years, but we were not targeting that market. Now with additional capacity we have started targeting and now count Radico Khaitan, Khodays and a couple of other players as customers.

2.     PRODUCTION CAPACITIES

What has been the progress on the capacity expansion program? What is the current capacity available and what was the Capex incurred in FY11 for the same. What is the capacity utilization currently? 

As on 31st March we had 36000 MTPA capacity. About 27500 is for Preforms and 8500 for Containers. Capex incurred in FY11 was ~25 Cr. Capacity utilisation has been at 90%. Plan for FY12 is to reach 40000 MTPA.

3.     PRODUCT SEGMENTS – PREFORMS AND CONTAINERS ARE THE MAIN SEGMENTS.

Could you share the production/Sales break-ups between the two segments for the year? Is it correct that Container Sales are more or less stable from Quarter to Quarter while Preforms segment has major seasonality being driven by CSD segment in the hot summer months.?

Today its roughly 60:40 between Containers and Preforms business in Value terms. Preforms production share is more like 70% as a significant chunk of that is through jobwork basis. Container business is steady and does not see the seasonality like in Preforms.

4.     SEASONALITY IN SALES –Q1 & Q4 ARE YOUR BEST QUARTERS

Looking at the results over last year and this year, it is very clear that Q1 & Q4 are your best quarters – demand-wise. And this is mainly driven by the CSD segment –hot summer months.

The Sales slowdown is usually more than 25% from peak sales in Q4 or Q1. How have the last 2 months been? Is the same pattern likely to repeat in Q2 & Q3?

As you are aware Q1 and Q4 are better quarters for us. Q2 and Q3 are dull quarters. Coke and Pepsi are seeing slower growths.

On the other hand, if we look at the demand surge in Q4 & Q1 it looks like it could absorb any capacity. Something like 3x existing capacity may also get absorbed?? What is the peak demand from say Coke and how much is Manjushree currently supplying?

What I can say is that between the quarters supply requirements fall by as much as 50%. We are a bit better off being in the South where the weather extremes are not as harsh. The players in Northern India must be seeing supply drops of 60-70%. Manjushree is today supplying probably 15% of the total Preform market.

5.     COMPETITION

Amcor is unlisted and so is Sunrise. Futura has been making losses since last 3 years. But AMD Industries has been doing well. For last 2 years they were at similar OPM as Manjushree but lacked slightly behind at NPM levels. They had a very good 1Qr and registered NPM at ~16%!

Kindly elaborate and help us understand the competitive scenario better. How serious is AMD as a competitor, with ramped up Preforms capacity. What about competition in the Containers segment? How is Pearl Polymers doing? Any other significant player?

There are 2-3 new players in Preforms. National Plastics with factory at Baddi and operations in North India. Chemo Plastics in Baroda, and another Hyderabad based player ramping up capacities. We have not seen AMD Industries ramping up aggressively. Pearl Polymers is not into Preforms and it has been registering only marginal growth.

6.     OPERATING MARGINS – SUSTAINABILITY

The most noticeable and remarkable performance is in constantly improving Operating margins – from 16% to 19% to 22% in the last 3 years. You had mentioned last year that this is simply economies of scale at play. What is the picture for FY12? We now have new facilities catering to the enhanced capacity? What are sustainable Operating Margins for FY12 and beyond?

We feel the operating margins are largely sustainable. There may be a fall of 100-150 basis points at the most. We should manage 20% plus OPM levels.

7.     CAPEX AND FUNDING.

What are the Capex plans for the next 2 years and how much funding would you need to tie up for the same in FY12 & FY13? Would this be totally through debt or are there any chances of equity dilution?

We will need about 40-50 Cr for FY12. Our new location and plant should be ready for shifting in by Dec 2011. This will be managed from internal accruals and debt. As mentioned before we are trying to secure ECB Term Loan on a long term basis. We are also exploring buyers credit from our machinery suppliers.

8.     WORKING CAPITAL MANAGEMENT

One of the pains in your seasonal sales demand is to keep producing and storing during the leaner Q2 & Q3 to deliver for bumper requirements in Q4 & Q1. This is perhaps reflected in the huge rise in Working Capital requirements in FY11. from 22% of Sales in FY10 to 38% in FY11, mainly due to rising Inventory. Kindly share what the company is doing to manage burgeoning Working Capital needs.

As you know Q1 and Q4 are our best quarters. But we keep producing and storing in the leaner Q2 and Q3 quarters so as to be able to do justice to the requirements in Q4 and Q1. Yes Inventory levels will be higher as the business grows. It will need better and proactive handling from our side to reduce this burden.

Infact our total funding requirement has been going up substantially as we need to keep expanding for growth. We have recently inducted a CFO to focus on improving our financials. 

The Interest burden has come down from Rs 3 Cr levels in 4QFY11 to 1.9 Cr in 1QFY12. How has this figure come down?

We had to account for additional Banking & Finance charges in Q4 FY11. Bulk of the charges were confirmed by the bank in the last Qtr and accordingly were accounted in the qtr.

Have you tied up any loans through the ECB/FCCB route for lower cost funding on both long term debt and working capital front? Could you give us a sense of the likely Interest range for FY12?

Yes, we are trying for ECB Term Loans and hopeful of concluding some arrangement in the next 2 months or so.

9.     NET MARGINS – SUSTAINABILITY

You had exactly the same situation in FY11. A stupendous first quarter with Net Margins crossing 9% for the first time. Management had sounded very confident of maintaining Net Margins at 9% levels for FY11, but ended up at ~7%. Please comment on what are sustainable Net Margin levels for FY12 and beyond?

We should do better than FY11 on the Net Margins front. We are focused on achieving better profitability.

10. MAJOR OPPORTUNITIES & CHALLENGES

Where does Manjushree Technopack see itself in the next 5 years? What is the size of the opportunity in its niche? Can we see Manjushree Technopack reach 500 Cr Sales, by when? What are the major challenges before the company and where are the big opportunities?

500 Cr in Sales by 2015 is a good target to work for. We need to achieve a few milestones on the way – still a long way to go. Meanwhile we are hopeful of touching 300 Cr Sales in FY12.

I think we have demonstrated that we are able to execute fairly well for our prestigious customers. We have kept growing the business with all our clients and are penetrating deeper.

As you know, ours is a very difficult industry. As we scale up, the main challenge before the company is better financial management.


Disclosure(s)

Donald Francis: No Holdings in the Company; ;
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PI Industries

Background

PI Industries (earlier Pesticides India) incorporated in in 1947, has Agrichemicals and Custom Synthesis as main business segments. It operates 5 multi-product plants at Gujarat & Jammu and one R&D unit in Udaipur, Rajasthan.


Main Products/Segments

Agrochemicals Product basket includes – Insecticides, Herbicides, Plant Nutrients and Fungicides. Insecticides contribute more than 50% of revenues, while Herbicides and Plant Nutrients contribute over 30% revenues. Rice crop and the Fruits and Vegetable segment are the top contributors, Cotton being the other significant segment. PI  Industries has over 50 years of experience of manufacturing & marketing Agrochemicals in India.

PI Industries entered the Custom Synthesis business in mid 1990s. The custom synthesis business caters to process and manufacturing requirements of Innovator companies in the Agrochemicals, Pharma Intermediates, and Specialty Chemicals sectors.


Main Markets/Customers

Agri-Inputs: ~60% of overall Sales in FY11, caters to Farmers through an extensive 2500-3000 dealer distributor pan India network. Five zonal offices, 24 branches, 220 sales staff, and 800 field staff support this pan India network.

From being a generic manufacturer of the reverse engineered off-patent agro-chemical products, PI has made the transition to in-licensing innovator company products for exclusive marketing rights to distribute their products in India. As per the company 40% of Agri-Inputs business is contributed by in-licensed products currently, and the mix is likely to go upto 50% with newer launches. PI purchases in-licensed products from the principals at a certain price and creates formulations/further manufacturing activities on these products to pack them under its own brand, and sells them in India. Most of it is branded sales, no bulk supplies to other players.

PI has a strong association with reputed companies such as Bayer, BASF, Chemtura and also a robust pipeline of exclusive co-marketing arrangements with top Japanese agro-chemical companies.

Custom Synthesis: ~35% of overall Sales in FY11, 100% exports catering to innovator companies from developed economies mainly Europe, Japan, and a small presence in US. 90% of these are all early stage, patented molecules.

With over 14 years of experience in custom synthesis business, PI has acquired strong competencies and proven its capabilities by working with more than 300 molecules at various stages of process development with up to 15 stage chemical reactions.

PI’s transparent non-compete and IP driven business model has earned it the confidence of clients while its core competence in process research and manufacturing has helped it partner global MNCs and Innovator companies -some ~30 active clients currently for agro-chemicals, pharma and specialty chemicals. As per the company, PI has more than 100 researchers and chemists to handle these assignments.


Bullish Viewpoints

  • Solid Track record – PI Industries have grown solidly over the last several years. Last 5 yrs have seen it clocking a compounded annual growth rate (CAGR) of 22% clocking ~720 Cr in Sales in FY11 from 318 Cr in FY07 . Operating profits have grown at a 5yr CAGR of 42%, while Profit after Tax has grown at an astounding 5yr CAGR of 73% to touch 64 Cr in FY11 from 7.19 Cr in FY07, or 9x in the last 5 years.
  • Consistent Improvement in Margins – Its good to see consistent upward trend in Operating and Net Margins in the last few years. FY07 and FY08 had Operating margins around 10%, going up to 14% in FY09, to 16% in FY10 and over 17% in FY11. 1QFY12 saw Operating Margins climbing to ~21%. As per the company, this is on the back of economies of scale with fixed costs getting spread over a larger base, and improving product mix and realisations in both its business segments. Clearly PI industries is operating at a different level, today.
  • Fast growing blockbuster brand(s) – During FY10, PI launched a new rice herbicide in India – Nominee Gold which had got a tremendous response from the farming community and has even been actively recommended by many state agricultural universities for adoption in rice cultivation. PI is expecting this product to achieve status of the largest rice herbicide in the coming years, contributing significantly to the growth of the company. With a portfolio of solidly growing products in-market and a pipeline of exciting new products, PI is poised to further scale up its business in FY12.
  • Innovative in-licensing model – PI works on an in-licensing model that helps it test market and work extensively in field promotion for newer innovative products, before looking to commercially launch the products. As per the company, there are 7-8 molecules in the pipeline under evaluation and registration stages and is targeting to launch 2 new products in FY2012. These are broad-spectrum insecticides with large market potential. All in-licensed products are based on long-term agreements and none of the products are due for expiry within next 5 years. Most of them have usage life of 15-20 years.
  • Agri growth drivers in place – As per the Management key drivers are quite positive. The Met department is expecting a normal monsoon. Early estimates of crop acreages are high and the agri produce prices are also running at an all time high. These are three key indicators which suggest that FY12 is expected to be a better year for the Agri-Input industry.
  • Strong order Book in Custom Synthesis – Current order book (1QFY12) is in excess of US$ 340 million with tenure of execution ranging from 2-4 years depending on different products. Most of the products are at start-up volume levels and are expected to ramp up significantly with time. As per the company, currently 14-16 products are in commercial scale, while some 24-26 products are at developmental Pilot & R&D stages. 65-70% of the Order book is from Europe, 20% from Japan, and the balance spread out.
  • Huge Capacity Expansion – PI Industries spent ~91 Cr on capital expenditure in FY11 mainly on expanded capacities at its Ankleshwar facility. It is also developing a SEZ project for Custom Synthesis at Jambusar in Gujarat on the back of the expanded order book, for which it has acquired 22.3 acre land. A total investment of Rs. 125 crore has been earmarked for this of which 75-100 Cr may be utilised in FY12, and the balance 25-50 Cr in FY13. As per the company this additional capacity may have a revenue generation potential  ~325-350 cr.
  • Robust recent financial performance – Agri business had grown ~38% over FY10 and custom synthesis business logged a 23% growth over FY10. Overall Sales grew by over 32% in FY11 to ~719 Cr from 543 Cr in FY10.  EPS on an adjusted basis grew by 57% to 51.19 from 32.69 in FY10. 1QFY12 registered a 59% increase in Sales to clock ~207 Cr (130 Cr) despite the polymer business sell-off, while EPS (adjusted for extra-ordinary income) surged 159% to over Rs. 20 (Rs. 7.8).

Bearish Viewpoints

  • Execution Risks – The main risks are on proper execution of expansion projects. Any delay in setting up enhanced capacities may impacted projected growth from custom synthesis business segment.
  • Effect of Monsoon – The Agri-Inputs business is largely dependent on the monsoon. While the FY12 Rabi crop (sown in winter months and harvested from May onwards) has reportedly been good, the Kharif crop (sown in the rainy season Jun-Sep) may still get affected by poor monsoons in the remaining months.
  • Sharp increase in Working Capital in FY11 – Working Capital/Sales shot upto ~29% in Q4FY11 as compared to ~22% in Q4FY10. Debtor days shot upto 90 days in Q4FY11 from 52 days in Q4FY10. Inventory dayssimilarly had climbed up to 72 from 52 days. The company maintained peak sales shift form Q3 to Q4 in FY11 responsible and normal working capital trends will resume in a couple of months. 1QFY12 indeed has seen debtor days down to 59, though Inventory days have increased somewhat to 75 days.
  • Huge increase in debt Levels in FY11 – Total debt sharply increased from 150 Cr in Q4FY10 to 248 Cr in Q4FY11. Company maintained this was mainly on account of short term unsecured loans to cover higher working capital requirements in Q4FY11. That this was not representative of the full year, company cited Interest costs for FY11 (18.19 Cr) being lower than FY10 (18.31 Cr). As Working capital normalises and sale proceeds of Polymer division (April 2011) accrues this would be brought down. 1QFY12 has indeed seen debt levels coming down sharply to 133 Cr. However going forward, additional capex requirements of ~75-100 Cr for SEZ project during the year is going to see increased debt levels.
  • Forex fluctuations – The Rupee/US$ fluctuations may effect custom synthesis business
  • Poor Liquidity – As on 1QFY12, Promoters hold 63.66%. Of the balance FI & FIIs hold 3.87%, Corporate Bodies hold 9.49%, Foreign Corporate Bodies hold another 12.85%, with Directors, relatives and Friends holding another 1.46% – totaling 27.67%. Effective float is just 8.67%. This implies significant impact on bulk entry and exit costs.

Barriers to entry

  • Unique Non-Compete model  – From inception PI has made trust-building the cornerstone of its strategy in custom synthesis and has refused to market competing products. As per the company, PI is the only Custom Synthesis business in the country where more than 90% of the molecules are patented or are at early stage of commercialization.
  • Strong Customer lock-ins – In the custom synthesis business, Innovator companies as a prudent strategy do not keep a single source. But usually for new products, for IP protection, and for other confidentiality issues they also do not keep more than two sources. If it is a huge global blockbuster kind of thing then they may have three sources, but usually not more than two sources.
  • Strong Brands – PI Industries has made the transition from being a generic manufacturer of the reverse engineered off-patent agro-chemical products, to in-licensing innovator company products with exclusive marketing rights to distribute their products in India. As per the company, PI brands are usually #1 or #2 brands in their categories.

Interesting Viewpoints

  • Strong Guidance from Company – On the back of a good monsoon for Agri-Input business and strong execution in custom synthesis segment, the company has guided for a 40% growth in Sales and an EBITDA margin expansion of 1.5% in FY12 (17.19% in FY11).
  • Sale of Polymer business – PI achieved successful closure of the sale of PI Polymer to Rhodia SA for 76 Cr. Post this transaction PI is completely focused on agri inputs and custom synthesis, both high margin and highly scalable businesses. PI booked 30 Cr of the proceeds as Extraordinary Income and the rest to be used to fund growth plans of existing business and/or bring down the debt. The disposal of the low-margin (EBITDA 10%) Polymer business is also expected to provide a fillip to overall margin expansions.
  • Joint Research Centre with Sony Corporation – PI industries signed an agreement with Sony Corporation to set up a joint research centre at Udaipur, named as PI-Sony Research Centre, it was formally inaugurated in January 2011. This R&D Centre will be engaged in developing commercially viable processes for molecules invented by Sony. These researched chemicals are expected to find use in futuristic products like flexible television, solar cells etc. This is a big testament on PI Industries custom synthesis capabilities. Work on several new molecules has already started, and revenue visibility is reportedly from FY13.
  • Currently India is amongst the lowest per capita consumers of pesticides at 380 gms per hectare while it is 2 kg/ha for China, 1.9 kg/ha for Europe and 1.5 kg/ha for the US. Also, out of the total crop area for rice, wheat and cotton in India, only 35-40% is treated with pesticides which indicates that the low penetration is likely to drive consumption of pesticides in India. [Source: Agrochemicals Market in India, FY11]

Disclosure(s)

Donald Francis: More than 5% of Portfolio in the Company; Holding for more than 2 years


Gandhi Special Tubes Management Q&A: May, 2011

Management Q&A

1. GANDHI SPECIAL TUBES HAS CARVED OUT A SPECIAL NICHE FOR ITSELF IN THE SMALL DIAMETER WELDED AND COLD DRAWN SEAMLESS TUBES. WHAT IS ESPECIALLY NOTICEABLE IS THE STEADY OPERATING MARGIN EXPANSIONS TO OVER 40-50% LEVELS THAT IS BEING MAINTAINED. THIS IS AN EXTRAORDINARY ACHIEVEMENT COUPLED WITH THE CLEAN DEBT FREE BALANCE SHEET.

Congratulations! Kindly share with us the factors that have contributed to this performance. Appreciate if you can share the kind of market share the company enjoys in the 3 market/product segments, and their respective margin contributions. On both fronts – Is it sustainable, and why?

The Seamless Tubes segment catering to Automobile OEMs is our most profitable segment. The Welded Nuts segment catering to refrigeration industry is fragmented, very competitive and the margins are very poor.
We will continue to enjoy leadership position in seamless tubes because of our technology, focus on quality and customer relationships built over the years.

2.     SEAMLESS TUBES, COLD FORMED NUTS SEGMENTS – ARE PROBABLY 100% IMPORT SUBSTITUTE PRODUCTS.

Looks like there is a deliberate focus of the company towards complex technology, high precision products and making a complete sweep of import substitution – probably with a high degree of automation involved – enabling the kind of margins above. Kindly share the business & product philosophy followed.

Yes, import substituition was a key focus as also segments which would enable us to garner a good market share with high profitability.

3.     GIVEN THE DOMINANT MARKET SHARE AND THE RELATIONSHIPS IT ENJOYS WITH MAJOR OEMS, ONE WOULD EXPECT THE COMPANY TO LEVERAGE AND PENETRATE THESE RELATIONSHIPS DEEPER. WITH MOST GLOBAL OEMS NOW HAVING A BASE IN INDIA, THE COMPANY SHOULD BY NOW HAVE A MUCH WIDER CUSTOMER BASE.

Kindly explain the company’s thinking and efforts on this front for a bagging share of the global market in its niche segments. When will we see a revival in export focus from the company?

We enjoy excellent relationships with major OEMs. However we have not been able to leverage this relationships for the export market. You see our products typically weigh a lot and freight costs are such that we are not competitive in other markets.
Focus on exports is not really there, but we keep talking to our customers, to see if they can source from here for global requirements.

4.     NEW PRODUCT INTRODUCTIONS

The 3 product segments have been contributing to revenues for the last several years together. Seamless Tubes share of revenue contribution has seen the most growth. No new products have been introduced. Are there new product launches in the anvil, or this situation is likely to continue?

Seamless Tubes and Cold Formed Nuts are the main Product segments.

 

5.     TOP CUSTOMERS –CURRENT BUSINESS & POTENTIAL MAPPING/PENETRATION

Kindly share some details on your top customers. How much business does your top 3 customers contribute. Is there any customer contributing more than 10% of Sales? Kindly give us a sense of the potential from such marquee customers if say you could service them a) across most platforms (e.g. commercial, SUV, passenger) b) bag a sizeable chunk of global business

Top 3 customers would contribute about 30% of Sales. Imperial Auto would account for more than 10% of Sales.

6.     BENTELER –RELATIONSHIP

Kindly share the kind of relationship enjoyed with Benteler who provided the initial technology impetus, process knowhow and raw material sourcing. Where is this relationship today? Is it a source of competitive advantage for the company? Why has the relationship not progressed to say a full-fledged JV that can leverage mutual strengths – global relationships/sourcing and Gandhi Special’s strengths on productivity, cost efficiency, automation, etc.

Benteler relationship is very strong. we continue to source most of our raw material from them. The Indian market is probably not big enough for them to make a big commitment yet.

7.     SALES GROWTH NOT KEEPING PACE WITH CORE BUSINESS CAPEX ADDITIONS.

In 5 yrs from FY06 to FY10, Net Sales has increased by ~21 Cr. However in the same period capex spend on core business (taking out windmill capex of 11.52 Cr in FY06 and 6.29 Cr in FY08) is ~31 Cr.

Also Asset Turnover in the last 2 years has fallen much below 1. Kindly explain the circumstances leading to this and the Management’s plan to improve on this situation.

We had made big investments into Capex in FY07 & FY08 but have not been able to capitalise on that because of the slowdown that occurred. We are consolidating on that base and have kept profitability intact. Hopefully in the coming 2 years we will do much better.

8.     LONG TERM SALES CAGR IS ~13%

Although investors are pretty happy with the earnings quality, the performance on the growth front is worrisome. What are the main reasons for this sluggish performance from a dominant market leader? Please comment on the following scenario plays that are being theorized by analysts in the market.

a) Overall market size is small for the niches you operate in. Having cornered a very dominant market share (some reports mention over 85% share), there is little scope for big ticket growth

b) Unless you find a way to crack open export markets through leveraging relationships with global OEMS, this situation is likely to persist

Yes overall market size is small for our product niches. There are several marquee OEMs who have set up factories in the South. In the next 2 years they are likely to reach full capacity by when we are hopeful of seeing sizeable growth coming through.

9.     FREE CASH FLOWS. SUSTAINABILITY. INORGANIC GROWTH CONSIDERATIONS?

Free Cash flows as a percentage of Sales has climbed to over 25% in FY10. What is the outlook on the next 2-3 years. Is this likely to be maintained? How is the company geared to cope, if there is sudden spurt in demand. Are there enough latent capacities/de-bottlenecking possible to cater to say double the long term growth rate (~13%)in the next 2-3 years. As per the current outlook and plans, when will the company have to incur major capex again.

Is there any thinking in the company on acquiring specialty niche companies in related domains, and growing through the inorganic route.

There are no plans for inorganic growth at the moment.

10.     RECENT FINANCIAL PERFORMANCE – OPERATING MARGINS ARE CONTRACTING. NOT MUCH CORRELATION WITH RAW MATERIAL COST SITUATION.

Going by 9m FY11 performance, GSTL has recorded an 18% increase in Sales coupled with a modest 2% rise in Earnings. This is on the back of higher raw material and other expenditure costs. Operating margins are likely to fall in the 45-46% range from the 50% levels in FY10.

Kindly explain the reasons for margin contractions over the last year, and what is a normalized level that we can come to expect.

FY10 was a very good year where we recorded high sales growth and benefited from some softening in raw material prices. We should be able to sustain at current year levels.

11.   HIGH MANAGEMENT COMPENSATION – FOR A COMPANY OF ITS SIZE (<100 CRS) GSTL SENIOR MANAGEMENT IS TAKING IN OVER 15% OF THE NET PROFITS OF THE COMPANY. (3.77 CR, 25CR IN FY10, 2.49 CR, 15 CR IN FY09).

No doubt, the Management has driven the high performance and great margins for the company, but this level of compensation seems high especially on peer comparison with companies of similar sizes that have registered much better growths. Please comment.

Management compensation is certainly within the permissible limits as per company law. We have maintained very high profitability and have been rewarding shareholders with good dividends. How many companies of our size have an accelerating dividend record as ours?

12. RAW MATERIAL VOLATILITY – WHILE RAW MATERIALS CONSTITUTE ~30% OF SALES, IT MUST BE NOTED THAT OVER 50% OF THE RAW MATERIAL IS IMPORTED (FY10) AND EXPOSES THE COMPANY TO FOREX VOLATILITY RISKS ON TOP OF RAW MATERIAL RISKS. EXPORTS ARE MINIMAL.

How is the company managing on this front?  Does the company resort to hedging? What are the terms from Benteler for raw material sourcing? What kind of credit terms does Benteler offer Gandhi Special Tubes? Is that also a source of competitive advantage?

There are no special terms received from Bentler.

13. BROAD PLANS AND VISION FOR THE COMPANY

Kindly share the major opportunities before the company, and the challenges ahead. How it is gearing up to meet these challenges? When will we see Gandhi Special Tubes crossing Rs. 500 Cr in sales?

We will continue to reward shareholders and maintain our excellent dividend record. Sizeable Growth in the business is expected in about 2 years when OEMS who have set up production in India recently scale up in a big way.


Disclosure(s)

Manish Kulkarni: No Holdings in the Company; ;
Donald Francis: No Holdings in the Company; ;
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