Speaking to CNBC-TV18’s Sonia Shenoy, Koshy K Varghese, Exective VP- Marketing at MRF said the drop in rubber prices did not help the company’s EBITDA margins as other input costs went up.
Tyre maker MRF today reported almost flat standalone net profit in the December quarter at Rs 179.89 crore. It had reported net profits of Rs 180.22 crore in October-December quarter of the previous year.
Speaking to CNBC-TV18’s Sonia Shenoy, Koshy K Varghese, Exective VP- Marketing at MRF said the drop in rubber prices did not help the company’s EBITDA margins as other input costs went up. Along with that, the ongoing recession in the auto industry did not help the Chennai-based tyre manufacturer.
“In this quarter, there would be pressure in the market, especially topline pressure. So, one has to wait and watch but margins may not improve significantly even though rubber has softened,” he told the channel.
Below is the transcribed interview of Koshy Varghese with CNBC-TV18.
Q: Could you take us through the margin picture and whether there have been any improvement considering the fall that we have seen in rubber prices?
A: The EBITDA margins Q-o-Q have remained more or less the same at about 13 percent though rubber price drop in January, but otherwise is not much of a significant change because the input cost of other items have gone up which in a way countered the margin drop.
Q: What kind of margins could be sustainable going ahead given the fall that we have seen in rubber prices in the month of January?
A: One part of the story is the drop in rubber price but the other part of the story is the drop in demand on account of the recession the auto industry is going through. The only consolation is the drop in rubber; other than that, prices have inched up. So in this quarter, there would be pressure in the market, especially topline pressure. So, one has to wait and watch but margins may not improve significantly even though rubber has softened.
Q: We are seeing that slowdown in your topline because of the slow growth in the Original Equipment Manufacturer (OEM) sector, so Rs 3,200 crore compares to about Rs 3,026 crore, not too much of a growth but a growth nevertheless. Do you think this low single digit topline growth will continue well into FY15, what could be the ballpark range of the topline growth?
A: Large depends upon how the OEM segments operate in the coming quarters which don’t seem to be very bullish. All current trends indicate that it will continue to be soft till probably the elections are over and there is clarity on policies. So, one is probably feeling that it will remain at current levels and may not show much improvement in the coming quarters.
Q: What about the capacity expansion that MRF has seen. Going forward what could that look like?
A: Capacity expansions are done with a long-term view and not with the current situation in mind. Looking forward, we expect that the auto industry would do well in the long-term and therefore, our capacity expansion, which we have been doing in the past, would continue across both – our existing plants adding across product category. On that we will not go back.
Q: And what would the capex number for FY15 be?
A: The capex number could be in the region of Rs 800-1,000 crore a year, for this year.