The overall industry inventory level stands at around 4 million tonnes (mt). Two million tonnes is the normal inventory, so out of the remaining 2 mt, 10 percent would be the inventory for Coromandel, says Mehan.
Commenting on Sabero Organics subsidiary's good Q2 performance, Mehan says there is further scope for improvement because the company aims at targeting 85 percent capacity utilisation from the current 65 percent.
On the margin front too, Mehan expects improvement from the current quarter itself as they have been showing a declining trend from the July-September quarter. "The international prices of raw materials etc. have fallen, but the fact is the fall has been pretty rapid, so if we average out our raw material costs of imports in the previous months and the current imports, we are pretty much at a good level where normal margins should come through," he adds.
According to him complex fertilisers prices could remain steady at least for the next few months.
Also read: Subsidy of around Rs 1700 cr pending from govt: RCF
Below is the verbatim transcript of his interview on CNBC-TV18
Q: We understand that inventory levels have fallen by about 40 percent. Personally for your company how much more is left that you would consider a drag?
A: I think the overall inventory for our company has also come down significantly and what is remaining is also now getting liquidated fast. Most of our inventories that were leftover from the last year's carryover were in the northern and eastern states and they are now getting liquidated because they are primarily rabi markets and that is also rapidly depleting now and we hope that by end of rabi more or less this issue of inventory overhang at least for Coromandel should be behind us.
Q: Could you give us the number? Where does the inventory level currently stand at?
A: The overall industry inventory levels are at about 4 million tonnes as compared to about 7.5 million tonnes at beginning of the year. Normal inventory is around 2 million tonnes which should be there in the system, so we are seeing an excess inventory of about 2 million tonnes as of now. Out of that 2 million tonnes we have less than 10 percent as far as Coromandel is concerned.
Q: Can you comment on how margins will pan out as well any impact of the rupee depreciation on your numbers?
A: The margins have been declining since third quarter of last year and they have started recovering from July-September quarter of this year. We believe that we should be back to normal margins from this quarter onwards.
While the international prices of raw materials etc. have fallen, but the fact is the fall has been pretty rapid, so if we average out our raw material costs of imports in the previous months and the current imports, we are pretty much at a good level where normal margins should come through.
Q: Could you give us directions about your revenues? It is understood that demand for company like yours would improve on back of good monsoon? We also understand that the prices of complex fertilisers could fall that could create more demand?
A: Prices have fallen this year as compared to last year but rupee also has depreciated. So, if one looks at average cost of imports as well as domestic production for the last few months, current prices should hold steady for at least next few more months. After that in case international market which has moved up in the last couple of weeks, if that recovery sustains or increases then we should have stable selling prices in the market but if that doesn't happen then we may see some correction in prices towards end of the year, which is any case is on off season.
Q: Your subsidiary Sabero Organics has also done very well. In Q2 revenues went up little more than 50 percent. EBITDA level nearly doubled. Is this kind of a performance in Sabero Organics sustainable?
A: Yes, in the long run we are looking at that kind of level of performance further improving, because we are still at about 65 percent of capacity utilisation, so there is a scope to improve that further. There maybe a few ups and downs due to market conditions or production conditions, but directionally it should improve from here onwards.
Q: What is your target utilisation on Sabero Organics? You said currently it is 65 percent.
A: In next 2-3 years we are targeting to go at 85 percent plus.
Coromandel Int stock price
On November 21, 2013, Coromandel International closed at Rs 216.15, up Rs 1.40, or 0.65 percent. The 52-week high of the share was Rs 285.00 and the 52-week low was Rs 162.40.
The company's trailing 12-month (TTM) EPS was at Rs 8.54 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 25.31. The latest book value of the company is Rs 76.83 per share. At current value, the price-to-book value of the company is 2.81.
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