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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Manjushree Technopak Management Q&A: Sep, 2010

Management Q&A

1. WE HAVE SPOKEN AFTER THE EXCELLENT 1ST QR RESULTS. CONGRATULATIONS, AGAIN!

How does it look from here? Have you added any new clients? Tupperware??

Thanks. Business outlook remains good. Tupperware is an existing client, it has been with us for over a year now. GSK consumer division is a significant new client we have added, for which we have set up additional dedicated capacity.

2. EXTENDED MONSOON HAS DAMPENED BEVERAGE SALES IN Q2 IN NORTH INDIA. THE 20-25% GROWTH FIGURES ARE DOWN TO SINGLE DIGITS, AS PER NEWS REPORTS.

How does Q2 look for Manjushree? Is it also badly affected?

Yes, North India sales is badly affected. But there has not been that much effect in the South. As you are aware, Q1& Q4 are Manjushree’s best quarters while Q2 and Q3 are slightly dull. To that extent sales will be lower in Q2. But nothing out of the ordinary has happened in Q2 for MAnjushree.

3. OF LATE MEDIA ACTIVITY HAS PICKED UP. SHRI VIMAL KEDIA HAS BEEN ON SEVERAL CHANNELS. THERE WAS A BUSINESS INDIA ARTICLE TOO. WE HAVE HEARD A FIGURE OF 200 CR FOR EXPANSION PROJECTS.

Seasoned investors are speculating that perhaps Manjushree will be looking to raise funds through the equity route, and is beefing up its profile in the media. Tell us more on the expansion plans. How will this be funded?

You know how Media exposure plays out. A set of good results, one channel interviews you, then others also get interested in the story. Nothing more than that, we certainly are not thinking of diluting equity in the near future.

The 200 Cr expansion figure is spread out over the next 3 years. One thing is certain, the industry we are in calls for continuous investments in capacity. you have to keep pace with your customers growth, if you cant business will go elsewhere. Rs. 60 Cr capital expenditure is planned for FY11, while Rs. 80 Cr is envisaged for FY12. Funding will be through debt and internal accruals. Our Balance sheet can be leveraged for that.

Of the Rs.60 Cr capital expenditure in FY11, half will go towards plant & machinery and the other half towards land & building.

4. AMCOR PLASTICS, THE GLOBAL RIGID PLASTICS PACKAGING MAJOR HAS SET UP MANUFACTURING IN PUNE. ALCAN, KLOCKNER, PENTAPLAST, CAN PACK, BOSCH PACKAGING ARE ALSO GETTING ACTIVE IN INDIA.

What is the level of competition activity? Isn’t Amcor Plastics, a big threat? Are the other players ramping up on capacity?

Amcor Plastics is one of 3 players in PET Preforms. But we have not seen them augmenting capacity in a big way. Perhaps Indian market is still not a focus area for the Australian major.

Among the domestic competition Futura and Sunrise, again we have not seen any significant augmentation in capacity. By the end of the year we will be far ahead of competition.

5. LETS SHIFT FOCUS TO MARGINS AND PROFITABILITY. OPERATING MARGINS HAVE JUMPED TO 19% (16% FY09).

Is this sustainable? What are the contributing factors? Is preforms jobworks going up the main reason?

What you are seeing here is simple economies of scale. With higher volumes, our fixed costs are getting spread over a larger base. Operating margins should be sustainable at these levels. Even without jobworks, we would have seen margins trending higher.

6. NET MARGINS HAVE NOT MOVED UP! 7.08% (7.09% FY09)

Depreciation costs have gone up to 7% (4.5% FY09) of Sales, and Interest costs have climbed to 2% (1% FY09). what is the picture likely for FY11?

We expect to record higher net margins for FY11 on the back of increasing Operating margins, which will be offset to an extent by the higher depreciation (increased capex) and interest cost ( increased debt).

7. WORKING CAPITAL HAS SEEN A BIG SURGE. WORKING CAPITAL/SALES IS AT 35% (21% FY09 AND ROUGHLY THE AVERAGE IN PREVIOUS YEARS)

Debtor days has gone up by 20% to 66 days (55 in FY09). Inventory Days is more or less at same levels at 64 days (67 in FY09). Payables days has shot up to 30 days (12 in FY09). Whats the likely trend in FY11?

Our debtor days are normally around that 2 months figure. Sometimes it may go up or down by 5 days. Inventory days will also be similar. 1 month Payables days is likely.

8. PREFORMS CAPACITY IS ROUGHLY 22000 MTPA. CONTAINERS CAPACITY IS 7000 MTPA.

You have announced capacity enhancement upto 36000 MTPA in FY11. How much will be Preforms and in Containers?

Preforms capacity will go up by ~5000 MTPA, and containers by ~2000 MTPA.

9. MOVING ON TO THE EXCELLENT QUARTERLY RESULTS. NET MARGINS AT 9.2%!!

While Depreciation and Finance costs have gone up, there is improvement in all other expense fronts/Sales – raw material, power & fuel, employee costs, other manufacturing sales & administration. Is this sustainable??

We touched on this before. We are reaping the benefits of economies of scale. yes we expect net margins to settle down at slightly higher levels than the past 2 years. We may see a drop of 500 basis points from Q2 levels, at 8.5% or so.

10. DIVIDEND PAYOUTS HAVE SLIPPED FROM 18% TO 13% IN FY10

Your dividend policy seems to be stuck at 10% of FV. One would expect dividends to keep some pace with the increase in earnings.

Well, at this stage of our growth, our business requires all the funds that we can plough back in the business. We believe our shareholders are reaping a greater return from the business results and stock performance. Having said that, yes we should see higher dividend payouts in future.


Disclosure(s)

Donald Francis: Less than 5% of Portfolio in the Company; Holding for more than 1 year;
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Manjushree Technopak

Background

Manjushree Technopack Limited is a rigid plastic packaging solution provider which specialises in the packaging of consumer goods. 


Main Products/Segments

Plastic Containers for packaging, PET/PP Jars & bottles, PET Preforms, Multilayer Containers, Hot fillable PET bottles, Injection Moulded Products


Main Markets/Customers

FMCG, Pharma, F&B, AgroChemicals


Bullish Viewpoints

  • Best Margins & Returns in the business – Operating Profit Margin (OPM) stands at 16% vs industry median at~10%; (global majors like Rexam Plc and Amcor operate at less than 9% OPM); both returns and margins have been trending up over the years in a very competitive industry
  • More than tripled its sales in last 5 years while earnings per share (EPS) has gone up 8x (on an adjusted basis) in the same period
  • Top marquee MNC clients in FMCG & Pharma space – Coke, Pepsico, Bisleri, Nestle, P&G, GlaxoSmithkline, Pfizer, Britannia, Kraft
  • Capacity expansion up from ~9000 metric tonnes per annum (MTPA) to ~22000 MTPA in FY09 and further upto ~29000 MTPA in FY10 on the back of strong long term job work contracts
  • Nice clean balance sheet – strengthened progressively over the years with adequate liquidity, very decent inventory and debtors management, and low debt to equity (<0.5). However FY10 D/E is slated to go up (> 1) due to fresh Term Loans for ongoing Capex .

Bearish Viewpoints

  • At 150 Cr Sales Turnover in FY10 Manjushree is still a pretty small company. Execution risks are probably significant as the company tries to attain scale.
  • Highly competitive and fragmented industry – the unorganised sector also plays a significant hand
  • Raw material price volatility – PET resin the key raw material is linked to crude prices
  • Environmental Regulations & Compliance stipulations of Regulatory bodies on Plastics remains a concern
  • Entry of MNC Plastics Packaging companies in the domestic market can be a threat

Barriers to entry

  • While Investments in Capex may seem low; of the order of 5-10 Cr per machine, passing stringent business and quality requirements and forming successful relationships with MNC clients usually takes upwards of 2 years

Interesting Viewpoints

  • Signed long term 3 year contracts with Coke
  • Management is confident of maintaining a 30% YoY growth record for next 5 years
  • Designs and Customer Acceptance trials ongoing for catering to Liquor Industry. Beer Consumption is 50 lakh bottles a day in India!

Disclosure(s)

Donald Francis: No Holdings in the Company;


Manjushree Technopak Management Q&A: Jan 2010

Management Q&A

1. MANJUSHREE HAS MADE SOME RAPID STRIDES IN THE LAST 4-5 YEARS. YOU HAVE TRIPLED SALES AND CROSSED THE 100 CR MARK IN FY09. EPS ON AN ADJUSTED BASIS HAS GONE UP 8X IN THE LAST 5 YEARS.

Plastic Packaging is a hugely competitive industry. Although this is on a low base, the track record is great. The Balance sheet too looks strong. Congratulations! what do you attribute this growth success to?

Management’s focus on investing everything we can back into the company is probably the number 1 factor – and this permeates everything that we do, our conservativeness in spending, etc. Our steadfast commitment to Quality and our ability to think differently, be the first to introduce new technology into the country, would come a close second.

2. YOUR OPERATING MARGINS ARE AT 16% LEVELS OVER LAST 2 YEARS. THIS IS MUCH HIGHER THAN INDUSTRY OPM AT AROUND 10-11%. EVEN GLOBAL MAJORS WORK ON 8-9% OPM.

What are the reasons for this superior operating performance? What are you doing differently than say 4 years back? And is this sustainable?

Unlike some others in the industry, we are completely focused on our niche –rigid plastics packaging. Some years back we had a division catering to flexible plastics packaging (intensely competitive), which we have since discarded. We have found we can compete better by focusing all our energies into our specific niche, we can track global trends better, we can bring the latest technologies into the country in tandem with customer needs, and try and keep a step away from competition.

Again unlike others, we have chosen to cater 100% to the Instituitional customers and do not have a retail presence at all. This requires a higher level of commitment and responsiveness to changing customer requirements in a completely dynamic environment, but is equally rewarding (growth, volumes) if you are upto the challenge. At any point of time we have 5-6 different joint-customer design projects going on!

These are some things that help us keep the edge. But the single biggest factor is probably our superior handling of raw material/inventory management, followed closely by a relentless watch over operational efficiencies.

We do not foresee any drastic declines in our margins, though we might see a 1-2% fall from time to time, it’s possible due to raw material price volatility, or other external factors.

3. YOU HAVE EXPANDED/STILL EXPANDING CAPACITY AT A RAPID CLIP. FROM 9120 MTPA IN 2008 TO 21740 MTPA IN 2009. FURTHER ADDITIONS DURING THIS YEAR IS LIKELY TO TAKE THE CAPACITY TO 28640 MTPA BY MAR 2010.

That’s 3x the capacity in 2 years! The Coke contract was for 6500 MTPA, with a 50% increment in FY2010, that would be ~10000 MTPA. FY 09 production was ~7000 MTPA. What other contracts have you signed/in the pipeline that justifies the continuous expansion? What is the current capacity utilisation?

We are operating in a very dynamic environment. Growth is not really a constraint, the challenge is not to falter on delivering consistent quality, and on time.

So far we have had an excellent track record. We have completed our expansion projects ahead of time. The latest expansion is on schedule, the machines are already installed, the logistics & support facilities are coming up and will be ready in the next 3-4 weeks and will certainly be on-stream by March 2010.

4. YOU HAVE MENTIONED THE COKE CONTRACT IS A JOBWORK. WE ASSUME THAT MEANS RAW MATERIAL PET RESINS, ETC ARE SUPPLIED BY COKE. THOUGH RAW MATERIAL VOLATILITY WILL BE OUT OF THE WAY, THAT WOULD ALSO MEAN THE JOBWORK CONTRACTS WOULD SURELY BE AT LOWER PROFITABILITY TO MANJUSHREE.

Given high capacity additions, there is the risk of low capacity utilisation. Besides if you take on more jobwork (currently 50% of capacity?), there is the possibility of further squeeze on margins. Looks likely that Returns and Profitability will be dented. What are Management’s plans on sustaining current levels?

This is something that we will have to see as it plays out. There is always that risk you have to take on in a dynamic business environment. If I am unable to commit and deliver on customer volume growth requirements, the business will simply go elsewhere. We have to take on these risks which are inevitable if we have to play in this industry, that is how the game is played! We have to be nimble on our feet; deliver on time, and deliver consistent quality; we can’t afford to fail on any parameter…we just have to find a way out to meet customer requirements.

At the same time we take comfort from seeing a natural hedge getting built in into our business-model as the proportion of jobwork (raw material volatility goes to customer account) in production goes higher. While corresponding Topline will certainly be lower (when jobwork proportion is higher) you see the proportion of raw material costs as a percentage of Sales will keep going down, and this will add distinctly to the bottomline, as volumes drive growth. We are quietly confident that we will make it up on superior volume growth.

5. MANJUSHREE BOASTS OF A MARQUEE CLIENT LIST, COKE, PEPSI AND OTHER MNCS. APART FROM RAW MATERIAL VOLATILITY, THESE SAME MNCS ARE QUOTED BY OTHER PLASTICS PACKAGING COMPANIES AS BEING RESPONSIBLE FOR THE DREADED MARGIN SQUEEZE PREVALENT IN THE INDUSTRY.

Is Manjushree doing anything differently? What are its competitive advantages? Why will they be sustainable, since entry barriers are pretty low. Whom do you count among your strongest competitors?

We are proud to be associated with some of the biggest names in the FMCG and Beverages space. All our customers have remained with us from the start and we have been able to consistently build on the relationships.

It’s not easy to penetrate into any of these accounts. It takes atleast 1.5 -2 years for a customer to evaluate you as a company (stability), your products and sustained quality. A 10 Cr investment in say Husky machines may seem a small investment –but actually its huge when you compare the per unit cost of the product (a coke bottle, e.g.). Where are you going to get the volumes to justify that investment – I can tell you, no newcomer to this industry can even think of that kind of investment, they will simply run away.

Having said that, this is a very competitive industry. You have to be on your toes all the time, to be close to your customers, work with them jointly on current/future requirements, and deliver consistently…if you fail the business will simply go elsewhere. We are happy with our customer relationships and they have been extremely supportive too.

Pearl Polymers, Futura are some of the players that are catering successfully to the same customers.

6. INDIAN PLASTIC PACKAGING FOR BEVERAGES IS SLATED FOR A 13% CAGR GROWTH TO REACH 8555 MILLION UNITS BY 2013, AS PER A EUROMONITOR REPORT. ALTHOUGH MANJUSHREE HAS DONE WELL FOR ITSELF OVER THE LAST FEW YEARS, IT’S STILL A VERY SMALL PLAYER.

What are your longer term plans? Apart from Beverages, what are the most attractive customer segments for you? Any plans to tap other packaging (plastic flexible packaging, metal beverage cans, paper) segments?

We are completely focused on our niche of rigid plastic packaging. At the moment there are no plans to look elsewhere. As you mentioned, the growth opportunities are tremendous. It remains in our ability to stay focused, and our ability to scale up on a consistent basis, without sacrificing any of our strengths. If we can execute well, there is no reason for us not to do reasonably well in the next 5 years.

We are confident of seeing a 30% CAGR in our business, for the next 5 years.

7. CAPITAL EXPENDITURE HAS BEEN DOUBLING EVERY YEAR FROM LAST 3 YEARS. FROM 8 CR TO 16 CR, TO 32 CR IN FY09. YOU HAVE ANNOUNCED A 64 CR TERM LOAN FOR ACQUISITIONS OF FIXED ASSETS IN THE CURRENT YEAR.

Sales or Profits have not kept pace with this capacity expansion. How scalable is this business? Will you be in a position to register some free cash flows anytime in the medium term? How will you fund future Capex requirements- further equity dilution, or is there room for leveraging the balance sheet by taking on more debt?

We have been investing all we can back into business expansion. We are a small company and we will need to keep investing more in business expansion for a number of years. Yes the pace has been fast, but we need to capitalize on the opportunities we are getting. We see nothing wrong with investing more in the business for a steady 30% CAGR growth for the next few years.

Coming to funding future capex question. We do not foresee further capex requirements for a year or two, possibly. With this fresh 64 Cr loan, debt-to-equity levels will be around 1.5 which is reasonable for our industry. The Balance Sheet is strong and there is room for further leveraging as we will keep bringing debt levels down.

However if there is a significant opportunity down the line, that needs us to dilute equity, we don’t rule that out.

8. MANY MULTINATIONAL FIRMS ARE ENTERING THE INDIAN MARKET DUE TO ITS LOW COST ADVANTAGES AND READILY AVAILABLE HUGE DOMESTIC MARKET. THE GLOBAL PLASTIC PACKAGING MAJOR ALPLA GROUP SET UP A 74:26 JOINT VENTURE COMPANY – ALPLA INDIA PVT. LTD AT BADDI, HIMACHAL PRADESH. SIMILARLY, KLOCKNER PENTAPLAST HAS PLANNED A UNIT IN AURANGABAD.

How are you gearing up to handle the threat from multinational players with better technology and global customer relationships that they are sure to leverage on?

We have not found this a threat till now. We are predominantly a south based player and currently do not cater to the North belt at all. The freight costs will be enormous! By the way, The southern region (Kerala, Karanataka, Andhra, TamilNadu) comprises 60% of the total demand for beverages in the Indian market.

At the moment we haven’t done enough to cater to just this region.

9. TOTAL DEBT HAS MORE THAN DOUBLED FORM RS. 13.25 CR IN FY08 TO RS. 29.42 CR IN FY09. HOWEVER INTEREST COSTS HAVE ACTUALLY COME DOWN FROM ~13% IN FY08 TO ~4% IN FY09

Appreciate if you can comment on the above so we can understand the picture better.

Firstly, if you exclude the unsecured non-interest bearing loans (husky machines, sales tax credits), the interest costs are in the 7% range.

Secondly what you are seeing is a snapshot of the Balance sheet on that day, right. What this does not reveal is the period for which the Rupee Cash credit limits were utilized. It was availed only for a limited period and not from the start of the year.

10. YOU HAVE SEVERAL MARQUEE BRAND NAMES IN YOUR CUSTOMER LIST.

For a smaller player how difficult is it to service these customers? How do you manage the customer relationship and engagement process? Please name your top 3 customers. What percentage of revenues comes from them?

As we have mentioned before we are happy servicing our prestigious customers and their demanding business requirements. They too have been very supportive of our issues, whenever we have asked them for any help.

We work closely with all our customers. At any point of time 4-5 joint customer design projects are on. We are always engaging with them on current and future requirements.

No single customer business exceeds 10% of our sales.

11. REAL LIQUIDITY ON DAY-TO-DAY BASIS SEEMS MUCH MORE STRAINED THAN THE RATIOS REVEAL? FY08 POSITION WAS BETTER BECAUSE OF THE FD OF XX CR. MARGIN MONEY ON LC & BG ALSO MAY NOT ABLE FOR ANYTHING ELSE.(CASH -5.28 LAKHS, CURRENT ACCOUNT -28.6 LAKHS, MARGIN ON BG & LC -10 LAKHS)

How do you view this situation? Are things going to be different this year, or?

Yes, we had things a little tight towards the end last year, but we managed without any hiccups. This year hasn’t been a problem as we have managed to take care of most of the requirements.

12. SUNDRY DEBTORS MORE THAN 6 MONTHS – OVER 1 CRORE; THIS HAS NOW INCREASED TO 7% OF TOTAL SUNDRY DEBTORS –THIS IS STILL CONSIDERED GOOD?

With your kind of client list, are you really squeezed on this front? Any bargaining power??

Yes that will come good. With our regular clients we do not face any such problems. As you would have seen we have a pretty healthy debtor days position. Infact most of our clients are happy to oblige us when we face any short-term issues.

13. FY 10 9MONTH RESULTS.

While the growth has certainly been impressive, we see much higher depreciation and much higher interest costs. What intrigues us most is Operating margins shooting up to 21% (from ~16%). What’s going on?

We covered this ground before. This is a direct result of job work volume growth adding directly to the bottom line in these 9 months. Its possible this will get tempered a bit in the coming months.

14. MPHINITE TECHNOLOGIES – YOUR ASSOCIATE COMPANY IS INTO PRODUCT DESIGN SERVICES.

Is Mphinite a source of any competitive advantage for you. Are you able to offer something more to your customers having in-house design capabilities?

Yes certainly that’s helping us win and retain our customers. Our ability to respond to changes in customers design requirements is certainly better.

15. FINALLY ONE LAST QUESTION.

~ 9 lakhs per year for MD and ED? Though its good to see conservative management, but isn’t that a bit too low?

That goes back to the first question you asked. We believe we have been successful because we have managed conservatively. We want to plough back everything we can into the business – we have a much bigger journey to traverse -we are not looking to take out form the business!

16. I AM MAKING BOLD TO ASK ANOTHER FINAL QUESTION, THAT I HAVE BEEN ADVISED TO AVOID BY SENIORS!

Your auditors share the same surname A.K Kedia or Atul Kumar Kedia?

That’s exactly what it is. A shared surname coincidence. Nothing more, certainly no relations!


Disclosure(s)

Donald Francis: Less than 5% of Portfolio in the Company; Holding for more than 1 year;
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