In an interview with CNBC-TV18's Ekta Batra and Reema Tendulkar, RB Kabra, President, Hindware Sanitaryware India Ltd (HSIL) , spoke about the various divisions of the company such as container glass, packaging and faucets business.
Kabra added that the government's recent announcement to spruce up sanitation in the country was a good initiative – though ambitious – and that concrete plans in the regards had not yet been announced.
Below is the transcript of RB Kabra's interview with CNBC-TV18\\'s Ekta Batra and Reema Tendulkar.
Ekta: Overall there is this big government drive towards sanitation, which is expected to be rolled out over the next couple of years. We want to find out whether orders have already started coming in for a company such as HSIL at this point?
A: Yes, the intention of the government which our prime minister has announced is very good and he has announced that by 2019 which is the 150th birth anniversary of Mahatma Gandhi he wants the country to be free of open defecation and the scavenging processes to be stopped.
But it is a highly ambitious goal because even after 67 years of independence we have 40 percent sanitation access to the people and covering 60 percent in five years seems difficult to me. Even if it comes to 55-60 percent that will be a big jump in terms of sanitation, which will help in reducing diseases and increase hygiene facility in the country. Especially for the girl child and women, this will be a big boom.
But if you talk of orders really coming off the ground it has not yet started because they have yet to announce how they are going to implement this scheme -- whether this will be public-private partnership (PPP) operated by the government or state governments or the municipalities or the panchayats. So nothing on the ground.
Maybe the government is working out how to go about it and once those schemes are announced and the funds are allocated for implementation, probably you will see some activity on ground which should be few months away from today.
Reema: Wanted to get your thoughts in on the container glass division because that has been a drag on your profitability. Can you give us a few numbers on how this division will perform in FY15 on revenues at the operational level and even for FY16 what the turnaround can be like?
A: As I mentioned in my earlier communications, last year was extremely bad for the glass business. We lost a lot of money and Q2 was the worst quarter last year. After that we started doing lot of work in terms of reducing our cost of production by controlling power and fuel cost, which is the largest cost of production substituting fuel with cheaper fuel.
That gave us a saving of 4-4.5 percent in terms of cost or production and it was achieved by end of Q4 and that was the reason that Q4 we were at the quits level. There were no losses, profit before tax (PBT) lever we were breakeven.
The market has started improving. We are now seeing growth in terms of offtake of the glass. There is a positive shine because of the confidence, which has returned to the customers because you know the glass bottle is a packaging product and if the consumption of food, liquor, beer, medicines and beverages go up certainly the bottles will go up which signs we have started to see for the last two months.
Going forward, this year we have given that the business packaging division will grow by 8-10 percent in terms of revenue but in terms of profit, we are targeting that we don't make any losses in the business going forward this year or at worst it could be Rs 10 crore loss or at best it could be Rs 10 crore profit but it will be a big jump in terms of last year's performance ending March 2014.
Reema: We were talking about the packaging division and you spoke about the outlook for FY15. But if there is indeed momentum, what can we expect from this division in FY16 in terms of revenue growth, will it be better than 10 percent that you are expecting in FY15 and can it also turn profitable at the profit after tax (PAT) level?
A: FY16 should be much better. As I mentioned that last year was bad because of various reasons, lot of capacity coming on the production, the customer segment for our customers not growing as per their estimation. So we expect that now with the new government in place, there is a lot of positive vibes around consumers.
Consumption is going up. So like we say, this year we are expecting 10 percent growth, next year should be much better- the growth could be anywhere between 15 percent and 20 percent and we have enough capacities to take care of those increased demand.
We have capacity for next three-four years because last year when there was a glut, we shut down one of our furnaces temporarily, which we can relight whenever there is a demand.
So going forward, the business looks very good. At best of times it has run at EBITDA margin of 18-19 percent and we expect that FY16, we should even do better than the EBITDA margins we have achieved.
Ekta: We do understand a plant was recently commissioned and that it could actually give more impetus to your faucet segment, can you give us a sense in terms of how much do you expect in terms of capacity utilisation at the Rajasthan plant and how incrementally beneficial will it be for your margins to skill up in FY16 odd?
A: We have just commissioned a very large faucet plant in Bhiwadi, Rajasthan. It has a capacity of 2.5 million pieces per annum and the plant has gone into commercial production on July 1, two months ago. We expect to ramp it up to reach to its full operational capacity with a run-rate of 2 lakh pieces per month by end of this financial year.
So this financial year, we will see only part capacity utilisation because it started in July and the ramp up will take time. So we expect that the faucet business revenue should grow by 30 percent this year. But going forward next year when we will be running this plant at full capacity, we expect our faucet business to reach a level of around Rs 350 crore by end of FY16. We are currently number four player and we expect that by FY17, we will be clearly number two player in the organised segment.
In terms of margin, the faucet business runs at a little lower margin than sanitaryware. So in terms of EBITDA percentage margin, we will not grow but because of the business growing, absolute EBITDA will certainly grow.
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