Astral Poly Technik Management Q&A: Dec, 2011

Management Q&A

Questions emailed to Astral Poly Technik CFO Hiranand Savlani. Telephonic Update

1. FOREX FLUCTUATION IMPACT ON OUTSTANDING ECB BALANCES. AS ON SEP 30, TOTAL DEBT IS 53 CR.

How much of this is ECB? And what are the interest costs and repayment terms. 

5 years with quarterly repayment instalments at roughly Libor +3%.

And what is the quantum of this ECB?

Majority of the debt is ECB.

That’s more like close to 50 Cr?

Yes

2. YOU HAVE MENTIONED A M2M LOSS OF ~8 CR FOR 1HFY12 – LOSS ARISING ON FOREIGN EXCHANGE RATE FLUCTUATION ON OUTSTANDING BALANCES, WHICH WILL BE ACCOUNTED FOR AT THE END OF THE FINANCIAL YEAR.

This can at best account for 4-5 Cr of loss on ECB loan outstanding balances. Does this mean the 8 Cr loss includes losses from the Payables as well, how much?

Yes, this is on account of M2M accounting for both ECB loans outstanding as well as on the Payables front, because of the steep Rupee depreciation. Together the M2M loss has been put at 8 Cr.

So is it right to say ECB Loans would have accounted ~5 Cr and the balance would be on account of Payables?

Roughly, it should be around that.

3. AS PER AS-30 ACCOUNTING NORMS, ASTRAL WOULD ALSO HAVE THE FLEXIBILITY TO CAPITALISE THIS (INCLUDING INTEREST OUTGO). MANY COMPANIES SPENDING ON CAPEX EXPANSION HAVE DECIDED TO CAPITALISE THIS – BALKRISHNA INDUSTRIES, PI INDUSTRIES, FOR EXAMPLE.

Why is Astral not considering capitalising this part – Is that not an option at all?

We are also thinking considering on those lines as majority of the expenses is related to Capital Expenditure. The options are open. We will take a call at the year end.

Is partial hedging also an option? Why, or why not?

We do take near term hedge. So 1 year equivalent of installments are hedged. So till March 2012, we are safe. Beyond March 2012, we will have to see what measures to take.

If that is the case that you are hedged on installment repayments, why was there exceptional items (1.22 Cr) loss due to changes in Forex rates on repayment of borrowings accounted for in Q2FY12?

That was on account of payments due…Buyers Credit dues. You see the Buyers Credit rollover is in 6 months.

We thought your credit terms with Lubrizol was 120 days, not 6 months?

Lubrizol credit terms are 120 days. But we had switched to 6m Buyers Credit. Current borrowing costs are 13-14% to take advantage of that.

Why the shift from 120 days Lubrizol credit to 6m Bank Buyers credit? What’s the advantage?

Well we get another 2 months extra credit isn’t it? Isn’t it better to extend the payment for 2 more months and have more funds available for Working Capital requirements. We need to pay 2.5%-3% for the buyers credit in lieu of the current 13-14% interest norms. We end up saving a flat 10%!

So, why don’t we hear more of the 6M Buyers Credit facility? Why is it not that common?

It is very popular. Out of 100, 95% of the companies will be taking this route.  In a Rupee stable situation, the flat 10% gain works to everyone’s advantage. And everyone is prepared for temporary spikes. Not for steep hikes.

But now the Rupee has depreciated by 16% meanwhile?

Yes, it doesn’t look so good now. Look, this is an extreme situation that has happened. You do business planning based on normal business forecasting. Normal forecasting or what anyone was prepared for was 4-5% moves. No one could have been prepared for a 10% plus or 16% plus depreciation, and that too in so short a duration!

We do business planning based on normalised situations. We can’t plan for extreme situations, can we?

Even from here if the Rupee remains stable at 52 to a US$, it will work out very well.

4. Q2 CONCALL MENTIONED RAISING ANOTHER 15-20 CR ECB AT LIBOR +3%.

What further tranches has the company drawn in Oct, Nov and so far in Dec? and at what rates respectively?

We raised $2 Mn in Dec and maybe we will raise another $2 Mn in Jan 2012.

And you did not draw any money earlier? In October, November?

$1 Mn in November

So totally some $5mn more has been drawn since September 2011?

Yes.

5. THE RUPEE HAS SINCE APPRECIATED TO 52 TO US$.

Is it correct to surmise that if the Rupee remains at ~52 to US$ till the year end, there will be additional liability of another ~4cr that will need to be accounted for by 31st Mar 2012, on the loans till Sep 30 alone?

See the situation is very dynamic. Everyday the positions change. Payments need to be made in between. We made some payments $1-2 Mn at 51.70 a couple of days back, and today when I check it has changed to 52.40.

Instead of trying to take a call on the direction, we try to participate at every level. So we participated at 51.40, 51.70, and we had participated at 51.20 levels too.

Now that the Rupee is at 52 to US$ and assuming that it remains there till Mar end 2012, is it fair to say that another 4-5 Cr liability will acoount both on payables and ECB loan outstandings?

Its very difficult to give exact figures, situation is too dynamic.

But given that $ has moved from 50-52 since Sep, i.e  a Rs 2 difference, and in September there was a Rs 4-5 differential, isn’t an additional 4-5 Cr a fair ball park estimate?

That is correct.

6. FOREX FLUCTUATION IMPACT ON PAYABLES. LIABILITIES AS ON 30 SEP 2011 – 136.88 CR

Forex paybles were at what levels on 30 Sep? 50-60 Crs?

Don’t have exact figures, right now.

But is it roughly in the 50-60 Cr range, or higher?

No, it will probably be higher.

7. 120 DAYS CREDIT TERMS WITH LUBRIZOL. THIS NORMALLY WOULD WORK TO ASTRAL’S ADVANTAGE. BUT IN THE FACE OF THE RAPIDLY DEPRECIATING RUPEE THIS MIGHT BE POSING A CHALLENGING SITUATION.

Kindly explain the hedging policies followed by Astral on Payables. Do you hedge fully your net outflows, or partially? How much?

(missed this totally, TBD)

8. RUPEE HAS DEPRECIATED ONLY STARTING SEP 2011. IMPLICATIONS ON FOREX LOSSES IN FY12 ON ACCOUNT OF UNHEDGED PAYABLES.

Since 120 days credit terms are in place, is it right to say that in Oct-Dec FY11, you will be paying for payables of Jun-Aug FY11? And since rupee had not depreciated till August, there is no impact on this front? Does this mean there will be a big impact in Q4 as the full impact of rupee depreciation from Sep till date will need to be accounted for?

Already covered above.

9. ACCOUNTING NORMS

As per accounting norms, aren’t you required to account upfront -even if the payables are due months later? If so, what is the likely impact respectively in Q3 and Q4 FY12?

As discussed Payables that become due need to be paid as and when they become due. But M2M accounting for the same has to be done on a regular basis. We have taken the decision that we will take a final call at the end of the year how to account for the same, depending on the situation prevailing then.

10. THE RUPEE HAS SINCE APPRECIATED TO 52 TO US$

Is it correct to surmise that if the Rupee remains at ~52 to US$ till the year end, there will likely be another hit of ~6-8 Cr on the payables front (if fully unhedged)?

(TBD)

11. MARGIN PRESSURES FROM RUPEE DEPRECIATION. RAW MATERIAL IMPORTS FY11 146 CR. THIS IS ~50% OF RM AND ~36% OF SALES. RUPEE HAS DEPRECIATED BY MORE THAN 16% SINCE SEP 2011.  ASTRAL HAD TAKEN A 3.5%-4% PRICE HIKE IN Q2. IN OCT YOU HAD TAKEN A 2.5% HIKE AND EXPECTED 3-3.5% IN NOV.

What is the cumulative price hike effected by the company in FY12 till date? Is it already at ~10% price hike levels!

Actually we have taken another 5% price hike in December.

So cumulatively is that a 15% hike effected so far in FY12?

Whatever that adds up to. See we are very clear that ultimately input price hikes have to passed on. Maybe with some time lag, but we have to pass that on, else our survival will be at stake.

But how do you take the price hike decisions? Do you wait to see what the market is doing, competitors like Ashirvad what steps they are taking?

Well we take our own decisions based on our business situation. We dont look for cues from others.

Can’t that be used by the competitors to gain/wrest away market share from you in certain markets, say where they are not dominant?

Well if someone wants to pick up business at a loss, that is their call.

If Astral made sale of 100, Its RM import would be 36. Depreciated 16% (~42) would mean your margins reduce by 6%.  Since you have affected a 10-15% price hike spread over Q2 & Q3, does this mean you are more or less protected on the margins front from the rupee depreciation effect so far? (Margins may well slide for other operational issues)

Given the current situation, we feel we will be more or less covered on that front.

Should the Rupee depreciate further, is there room for more hikes, how much can you really pass on? Have you taken any more hikes beyond the 10% already?

Like we discussed before a 5% hike is taken in December. This is a business reality – we got to pass on the hikes, there are no two ways about it.

12. STABLE MARGINS IN FORESEEABLE FUTURE. MARGINS HAVE BEEN ON A DECLINING TREND OVER THE LAST FEW YEARS. FROM 18%  IN 2008 TO 13-14% IN FY11. AND FY DOES NOT LOOK TO DELIVER MORE THAN 12%

Where do you see margins stabilizing in the near to medium term?

18% days were in those days when we were not growing this fast. Growing at 40% in these times is not an easy task. In recent times, we have been prepared to shed a couple of percentage points in pursuit of higher growth. But we hope to see uptrend in margins as we start producing at full capacity utilisation. Operational efficiencies will go up as economy of scale effects kick in.

So in the medium term, where do you see margins stabilising at?

It will probably be in the 12-14% range.

13. COMPETITION. SUPREME TIE UP WITH KANEKA. MEGHAMANI JV/FACTORY WIH KANEKA FOR 20000 MT

Please give us your sense of market developments. Who do you see as your most significant competition, and why? How’s it on the pricing front with Kaneka sourced products? Do you see any margin pressures developing due to heightened competition?

Well the Kaneka plant is not coming up before 2014, probably 2015. By year-end we will be at 65-70000 MT levels. And we will not be staying still till then. We will be making our own plans. We will also be somewhere else.

See there is a problem with the sourcing of CPVC compound from non-Lubrizol sources. Otherwise things would have changed long back. Competion plans, our business plans are never static. Everybody assesses the situation and takes measures appropriate to ensure survival and growth.

We read somewhere, Kaneka’s global production of CPVC is 46000 MT is that correct?

Well I don’t have those details. But this is for sure, Kaneka’s commitments in other markets will not allow it to significantly change the dynamics in India atleast in the next 2-3 years. 

Nothing remains static, right. By that time ….Lubrizol will also take some steps, isn’t that likely.

So you don’t see any significant competition in the next 2-3 years?

I didn’t say that. Competition is a part and parcel of life. There is no monopoly, right. But everybody is growing, there is enough room for everyone to grow…the market is big enough for more. Forget CPVC, look at the PVC market. In every small nook and corner they are making PVC. Despite that everybody is growing.

By 2013-2014 we will also be a certain size. We will be much stronger. You can put your own numbers if we continue to grow at current rates.… We will be able to dictate certain terms.

14. REALTY/INFRASTRUCTURE SLOWDOWN

Have you seen any impact on the ground so far? 

Look we are getting our Orders regularly and without any interruption. Supplies are being made. Uptil now we have seen no discernible effect on the ground.

So, how confident are you of delivering 30-35% growth in the coming 2 years?

We are certainly hopeful of maintaining the growth trends. The interest rate and credit availability cycle reversal may start sooner than later. If we go by the recent statements from RBI, these is coming soon.

And when that happens, demand will start groing faster. Because the main hindrance to this sector, is the finance rates. 

15. PROMOTER SHARES CHANGING HANDS. MR NIMISH DALAL SELLING HIS STAKE TO MR ENGINEER IN OPEN MARKET TRANSACTION.

Mr Nimish Dalal had also earlier tendered his resignation as a director of the company. Is this a fallout of the Lubrizol relationship? Kindly explain the reasons behind the transaction and the timing of these transactions.

Not at all. Why should Lubrizol be in the picture? Se they are family members. They have a family understanding within which the stakes have changed hands within the family. See Mr Dalal is Mr Engineer’s Uncle. The family will be together for a lifetime.

But Mr Nimish Dalal is employed with Lubrizol, right?

No, Mr Nimish Dalal is not with Lubrizol. He is a Doctor!
Mr Girish Dalal, who is Nimish’s father was with Lubrizol. Kabka retire ho chuke!
In the market people will talk all sorts of things without verifying back with the Management!

But Mr Nimish Dalal also resigned as a Director from the Board? Why did he need to do that?

Well these are not related. Mr Nimish Dalal is a US resident and was not very active.

16. Lubrizol relationship

Do you have anything to report on developments on this front? When can we expect a formal announcement of progress on this front?

The relationship is strong and progressing well. What do we have to report on that

We meant, the proposed investment from Lubrizol taking the relationship to the next level?

That’s and ongoing thing. Negotiations going on…studies going on from Lubrizol side…there is no formal agreement.

Moreover, we have already said that we signed an NDA with them on project confidentiality. It’s not that we don’t want to share any progress, we can’t. Till there is any formal agreement signed, there can be no clarification form Astral. This is to protect the interests of the company.

Things may or may not happen. That is why we had to issue a formal clarification that look these things are very far away. There is nothing material at the moment. If investors took a call on the basis of that Lubrizol announcement that would have been sort of misleading. In order to protect the interests of the investors in our company, we issued that clarification – that don’t make an investment call based on any announcement like that, it will be entirely misleading to do that.

So, do we take it that no news is good news?

We would like the long-term investors in the company to take conservative calls on the company. As and when things happen we will come up with appropriate announcements, at the right time. If something does not happen, then also we have to make the appropriate announcement!

One appeal to long-term investors in Astral. Don’t listen to market rumours. People will say all kinds of things. If you have any questions or want to understand anything about the company, please approach us directly. Talk to us, we will be happy to provide you all the details that we can share.


Disclosure(s)

Donald Francis: More than 5% of Portfolio in the Company; Holding for more than 6 months;
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Indag Rubber Management Q&A: Nov, 2011

Management Q&A

1.      DECENT GROWTH RECORD – IN THE LAST 5 YEARS INDAG RUBBER HAS CLOCKED A 25% PLUS CAGR IN SALES. SALES TOUCHED ~150 CR IN FY2011. PROFITS HAVE GROWN ALONG SIMILAR LINES WITH A ~26% CAGR. IN THE SAME PERIOD BOOK VALUE HAS COMPOUNDED BY OVER 35% CAGR. BUT THE STORY FROM 2002-2006 WAS ENTIRELY DIFFERENT – ZERO ADDITION TO BV, POOR OPERATING MARGINS. EVER SINCE THE SHIFT TO THE BADDI (HIMACHAL PRADESH) PLANT, INDAG HAS NOT LOOKED BACK!

Kindly take us through this journey- what changed, for the company? Tax incentives leading to tax free status for first 5 years was a major contributor no doubt, but even at the operating level there was a big shift, isn’t it?

Yes, there were a number of tax-duty incentives. 10 year excise exemption, with a 5year income tax holiday, and 30% tax exemption for another 5 years.

Retreading is a labour-intensive operation. The Himachal plant was a completely new plant set up in 2006 with a number of technological improvements brought in. We brought in new staff, productivity, morale and efficiencies were all up. Marketing intensity was cranked up to take advantage of all the improved operating efficiencies from the new plant.

We started investing significantly in R&D in developing new cost-effective material and tread patterns. These R&D Investments have now started paying off, and these has been evident from the results of the last 2 years.

Was it that Labour issues at the Bhiwadi plant being put behind, was the major spur? While Bhiwadi plant was closed in 2006, just when were all the plant/machinery shifted to Baddi?

The Bhiwadi plant was already 14 years old. Small plant with 82 MT/month capacity.  And yes, the labour issues were behind us for good.

How was the Bandag Association? And why did it end?

Indag introduced the cold retreading process in India with Bandag technology in 1982. The technology was superior to existing hot retreading process. There was nothing new added to the technology in the 20+ years since introduction. The association ran its course and ended when the promoter family bought over Bandag’s stake in the company consequent to Bandag’s worldwide operations being sold off to Bridgestone in 2006.

2.      PROMOTER GROUP – KHEMKA’S AND INVOLVEMENT

Kindly give us a little background of the Promoter group and their involvement in the running of the company. Promoter Group stake need to come down to 75% by FY13 – any moves on that expected soon? When did the current Management take charge? 

The promoter family are Khemkas. They have sizeable overseas interests in Russian and CIS markets in Oil & Gas, and some other sectors. Indag Rubber is a very small operation in the overall scheme of things.

The company is run by professionals led by CEO Mr K K Kapoor who has been steering the company for the last 10 years or so. He is assisted by a professional team who have also been around for a number of years. The Promoter family attends Board meetings and is around for strategic decision-making, but do not need to be there for day-to-day operations.

No idea about transactions for bringing stake down. Will happen in due course.

3.      INCREASING PRICE REALIZATIONS OVER LAST 5 YEARS. IF WE LOOK AT LAST 5 YEARS DATA – VOLUME GROWTH CAGR WAS 15%, WHILE SALES RACED AHEAD AT 25% CAGR.

Kindly comment. What are the factors that have contributed to increasing realizations for Indag over the last 5 years? Increasing RM costs being passed on, better performance and acceptability vis-à-vis competition, brand building efforts, what?

Indag as a brand has got fairly established. A certain segment of quality conscious customers do ask for Indag brand. We have made sure that our products are always available. There is not much price difference between products from organised sector.

Higher price realisations have accounted for much of the growth achieved. We have been able to pass on our Input costs – RM, power, fuel, etc.

4.      ENTRENCHED COMPETITION – MIDAS, ELGI RUBBER, MRF, VAMSHI RUBBER, EASTERN TREADS, THE UNORGANISED SECTOR. AND THE CHINESE THREAT.

Please take us a little bit through the competitive scenario how it was 5-10 years back and the position now?

Elgi and Indag both started around the same time and followed similar exclusive retreaders business model. And offered a support network. Midas went a different route and appointed dealers and scaled that up aggressively. They did not offer any support.

Post 2006 Indag stopped exclusive retreaders. Market competitiveness remains the same. Indag is more established as a brand now, we have increased our distribution reach, and are growing at a faster pace. Price points vary within 150-200 Rupees among leading brands. There are 5-6 organised players and rest from unorganised sector.

Most/All of these have been in the business for 25-30 years plus, right – what has Indag done right, that its rated almost at the top of the pack – in margins & profitability, at the least. How much of a difference/contribution did the Bandag JV bring to the table?

In 1982 Indag introduced the cold retreading process in the country with Bandag technology which is superior to the hot process, but requires higher 10-15 Crs capital investment. Hot retreading is used by unorganised sector mainly. The technology has remained the same over the years – not much change.

Our quality has stood out over the years. For example we are the only retreader who can collect advance payment from some State Transport Units (STU) like the UP STU. The STUs have years of retreading experience and data with them. They have organised and evaluated that data to come out with a cost/km rating for all manufacturers. Indag stands out in those ratings and is thus able to do good business with the STUs. Currently about 200 MT/month is accounted for by STU segment.

We have introduced newer materials and more effective tread patterns that have started paying off in the last couple of years. We have started growing at a much faster pace now.

Kindly comment on the Chinese cheap tyre threat. What’s the current outlook?

New tyres at 6000-8000 Rs was a novelty difficult to resist. But the quality and mileage achieved was poor. So these poor quality chinese imports have not affected us significantly.

How do you rate the smaller players like Vamshi Rubber and Eastern Treads?

They are there for a number of years. Yet to be significantly big players.

5.      SALES & DISTRIBUTION

Kindly take us through your sales and Marketing set up.

We have about 365 retreaders on a countrywide basis up from about 150-200 retreaders in 2006. We have started appointing dealers in the South and West belts. There are some 20 dealers appointed in the Southern region and looking to scale up in Maharashtra. Our direct sales force about 55 people engages and looks after this setup.

Do the retreaders buy retread material from company owned depots/franchisee (C&F Agent) stores.

We have about 25 depots/C&F Agents. Of these 2-3 are company owned. Rest are operated by Franchisees. Retreaders are supplied from the depots.

If it’s basically a stocking operation at depots (C&F Agents), how do you manage the retreader relationship well? Is this on an exclusive basis? How is end-product quality assured/monitored?

Well Elgi and Indag started at around the same time and with similar business model of appointing exclusive retreaders. Over time market forces have ensured that this could not be sustained. Post 2006, there are no exclusive retreaders with anyone. We ensure that we support the retreaders well. Our support team visits, inspects and offer them free maintenance on their equipment every quarter.

Are there completely different retreader segments – ones that cater to organized sector players, and other segment that caters to unorganized sector? Is there cannibalization in sales within the organized segment between different brands. If not, and every retreader maintains retreading options say at different price points, how do you manage the sales & marketing objectives?

Retreaders stock material at every price point and from every manufacturer. They need to, that’s the nature of his business. He may push some products depending on the incentives from manufacturers. Indag as a brand is established. So our sales force needs to track sales and ensure ready availability from any of our depots. Availability is the main criteria after the price point and brand. We have ensured that we have a depot in every state.

Is there any kind of customer pull or brand preference, at play? Why would a customer prefer a Indag retread over say an MRF retread? What kind of sales promotion and brand building activities, if any, does Indag participate in?

We hear bigger transporters, quality conscious customers asking for Indag retreads by name. There is a certain segment that understands the difference in quality and the impact on a cost/km basis, but that’s niche.

Our direct sales force engages with local transporters, educates them about the quality and performance standards, shares with them Indag data, and gives them samples to test and use before purchase decisions are made.

6.      THE RETREADING MARKET IN INDIA.

Kindly share your understanding of how the numbers stack up in the retreading industry. Let’s say a 100 tyres reach end-of-useful-life, how many are replaced by new tyres, how many are retreaded, and how many are sold off as scrap?

Well as per our data, almost 55-58% of the used CV tyres cannot be retreaded. Its probably to do with consumer education – trucks are almost always overloaded, road conditions are bad, and most of the tyres are driven till the stage that the base becomes so weak as not fit for retreading. And some of the tyres genuinely go burst, cut and otherwise worn out to end up as scrap.

Only 2% go for New CV Tyres! So roughly 40% go for retreading.

And Globally, how would the percentages be?

Globally things are pretty different. Retreading is a pretty established trend in commercial vehicles. The road conditions are much better. Overloading is not allowed, tyre pressures are maintained. All the tyre majors have retreading arms and the quality of the retreads available are superior. And there exists a well-established franchisee network that periodically collects tyres for retreading.

If a new CV tyre costs Rs. 18000, what is the range that retreads sell at 4000-6000? Where is Indag positioned/priced in this range vis-à-vis a Midas, a Vamshi, or a MRF retread?

Retreads typically sell at 4500-4800 range. Not much difference between different brands. Hardly Rs 150-200 at the most.

Please share with us some perspective on the total market size. How much is Unorganised? Please give us some idea on the scale of operation, current production capacities say at Midas, MRF, Elgi, JK Tyres, Vamshi and Eastern Treads. Have you seen any significant scaling up by Competition recently?

We can’t say about installed capacities. But from whatever figures we hear, Midas used to produce about 2200 T/month which they say they have scaled up to 4000MT/month so they are producing about 45000-50000 MT/year from some 15-20 units. Indag is at 800 MT/month. MRF, JK Tyres are not producing significantly. Vamshi and Eastern may be producing lower than 500 MT/month, while Elgi may be slightly higher – their production is difficult to track/estimate because of overseas factory/markets.

7.      13800 MT CAPACITY. POOR CAPACITY UTILIZATION RECORD 42% IN FY2006 TO 56% IN FY11. ONLY ONCE IN LAST 5 YEARS HAS CAPACITY UTILIZATION TOUCHED 60%

Kindly take us through the reasons for this cautiousness/approach so far? Are we going to see a little more aggressiveness at play from here on?

You need to understand that the Himachal Facility was a greenfield facility set up from scratch. As explained before there was a complete change effected in productivity and plant efficiencies achieved. We have always tried to grow without stretching the balance sheet too much. We have also tried always to be a little ahead of the demand curve. Expansions when undertaken have to be done in 300-400 MT increments, whereas your demand scenario might not be keeping the same pace.

The last expansion undertaken in FY10 was also to take the maximum benefit that we could take for the excise duty exemptions angle.

With the emphasis on setting up dealer networks, especially in the South and West, we expect to grow faster.

In the last AGM it was mentioned that company will not need any further Capex till reaching 300 Crs in sales? When is the next capex cycle planned? And by when?

If the business keeps growing at the pace we are seeing, we will need to initiate some capital expenditure next year during Oct-Dec time frames. Now whether that’s an incremental expansion of 300-400 MT or  upwards of 500-1000 MT, that remains to be seen.

8.      BHIWADI FACTORY LAND. LAND VALUE MENTIONED IN LAST AGM 40 CR

This is a sizeable asset lying idle for the last 5 years. What are the plans going forward?

There are some plans for utilisation of the same in partnership with some interested parties. various options are being considered.

Operating Cash flows if sustained seem more than enough to fund future capex requirements and working capital, so why not dispose of this land, and return some money to shareholders?

As mentioned, there are no plans for disposal in the near future, for sure. The utilisation plans are big and may take some time to take concrete shape.

9.      DIVIDEND POLICY

Kindly elaborate on the Dividend Policy followed by the company. Why is it not increasing somewhat in tandem with earnings. Post FY11 and the recent 1HFY12 earnings, we were expecting higher dividends after being stagnant for the last 2 years!

There is no enunciated dividend policy in place. Well interim dividend has been declared at the same level as last year. The company is considering some OTR retreading expansion plans for which ~5-7 Cr may be required to be kept aside.

10.   1HFY12 RESULTS

Kindly give us some perspective on the sales growth achieved? How much is on account of volume growth and how much from higher realizations? What is the outlook for 2HFY12? Is it likely to be as robust?

Well we produced 4678 MT in 1HFY12. In FY11 we had produced some 8560 MT, so if we consider on half year basis, the volume growth has been of that order 9-10%. The rest of the growth has come from higher realisations.

We expect to grow at similar rates in the second half of the year. Demand is robust, we have not seen any slowdown in demand for retreads, with manufacturing or industrial activity slowing down.

11.   BANDAG RUBBER ACQUIRED BY BRIDGESTONE IN 2006 FOR $1.05 BN. BANDAG SALES FOR 2005 $925 MN

In developed markets, every tyre major has a retreading arm. With MNC tyre majors taking an increasing presence in India, do you see any moves from the tyre majors at acquiring retreading arms? How far are we from that kind of consolidation in Indian markets?

Retreading is not yet a serious business in India for any of the Tyre majors, yet.  MRF, JK Tyres have a presence but not on any significant scale. We are some years away from seeing consolidation efforts.

Michelin has announced its plans for India. And there are some radical changes/products proposed. For example, we usually see 10-12 kg retreads being offered in the Indian industry. But Michelin has said they will be launching the 15 Kg treads in India.

End of the day a retreaded Michelin tyre has to do 80-90% of the mileage that a new tyre gives. A regular 10-12 kg retread on a well-preserved Michelin tyre base should do the same job

12.   CHALLENGES AND RISKS BEFORE THE COMPANY.

What would you say is your biggest challenge or vulnerability as the company attempts to scale up and go to the next level. Where do you see Indag by 2015?

Indian retreading market had been fairly steady in the last several years. The unorganised sector continues to play its role. The organised sector has seen the entry of the tyre majors like MRF, JK tyres but that did not make for any significant impact. With the entry of Michelin and its plans of heavier, costlier 15 Kg retreads, we will see some changes and new challenges.

Indag should continue to do well and grow at our normalised rates for the next few years.


Disclosure(s)

Ayush Mittal: No Holdings in the Company; ;
Donald Francis: No Holdings in the Company; ;
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