Analyst Meet / AGM - Analyst Meet
The company’s sales of V boards and panels has a potential to cross Rs 500 crore in next 3 years with higher margins
In interaction with Mr. Vepa Vallinath Director and CFO.
Key Highlights
As per the management, post demonetization, somehow November went through. Dealers, stockist all made some arrangements, credits etc and inventory was taken. As against 44500 MT of asbestos cement sold in Nov'15, the company was able to sell around 40000 MT in Nov'16, around 10% lower. Both Oct and Nov 2016 put together, the company lost around 5% in volumes. HIL lost around 10% while surprisingly Everest industries gained around 0.89% in volumes in these 2 months.
As per the management, December is the acid test of Demonetisation. If the currency has not reached to end retailers where ever they may be in India, then demand will take a jolt. Inventory log jams will happen and it will take some time before these inventory issues get over. In Dec'15 the company sold around 52500 MT of asbestos sheets and Dec'16 month will give the true picture of where we all are headed till Mar'17.
Barring this demonetisation event, asbestos volumes have started to increase and after 3 years of struggle, the industry was shaping up well.
The competition from coloured coated steel sheets was also reducing as the industry realized the wear and tear of these sheets does not lead to real price benefits compared to asbestos sheets.
Overall around 68% of company's sales is from the asbestos sheets, around 18% from fibre cement sheets and rest from textiles.
Overall, the target for next 3 years is to increase the share of high margin business of V boards and panels (fibre sheets) and textiles which is around 32% put together today to around 50% in next 3 years. However, with asbestos sheets also growing may be the share of these 2 high margin segment will be upwards of 40%.
Management reiterated that they will not hive off the textile business. The business is a niche one and generates around Rs 18-20 crore of cash every year. Further while the company is doing well, the industry is not. There is no buyer who can give 3 times of cash flow for the segment. Management does not pay much attention to this division. Post the capacity addition in H2 FY'17, there will be no capex for the next 3 years for the segment.
There is a big revolution going on for the high margin V boards and panels business right now. What was seen once for premium ply product, where Century Ply had grabbed the huge opportunity and sky rocket its business, is now visible for V boards and panel business.
Although Everest was front runner for V boards and panel, the company never capitalized on this high margin business. HIL is also becoming larger but Visaka has higher distribution and reach in this segment. The company will be expanding in V boards and panels segment going forward with capex of around Rs 100 crore in next 3 years. The company will soon announce a green field expansion either in East or in North to grab the market potential of these regions.
The sales of V boards and panels are around Rs 140 crore which has a potential to cross Rs 500 crore in next 3 years with higher margins.
The company badly needs GST. It's under highest excise and sales tax bracket, while companies like Everest and other unorganised sector is under lower rates. GST will give around 4-6% advantage to the company.
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