"Diwali was very bad, largely because of the base effect. Last year, due to six cylinder cap of the subsidised gas by the government, our induction and induction-related products were doing well. After the government withdrew that, the sale of the induction cook tops has come down, so because of that the base effect will come down," said TT Jagannathan, Chairman, TTK Prestige , on CNBC-TV18.
The management said the margins are likely to remain under pressure going forward and may fall by 50bps/year in 3-4 years. The company's Q2 EBITDA margin declined 200bps and the gross margin declined by 300 bps.
Investment bank Jefferies has downgraded TTK Prestige to underperform from hold.
Below is the edited transcript of TT Jagannathan interview on CNBC-TV18
Q: For all the brilliant performance of the last five years, the last two quarters have been troubling primarily because of power issues. Have things completely stabilised on the power front?
A: Not really. Tamil Nadu is still suffering serious power problems and across the nation there are still power problems.
Q: So what would your capacity utilisation or actual impact of this infrastructure constrain be on capacity utilisation?
A: Capacity utilisation in our business is not relevant because it is completely variable. Our capacity utilisation changes from month to month depending upon season. Thus, capacity utilisation is not a big thing.
Q: Your stock has been one of the biggest wealth creators from 2008 to 2013 but we are trying to understand what the growth for the next couple of years could be. For FY14 itself you have guided for a revenue growth of 10 percent but the first half of the year has been troublesome with growth coming in at just 2 percent. Do you think even this 10 percent FY14 growth could be a tall ask?
A: It will be a tall ask as I see it now. Diwali was very bad largely because of base effect. Last year, because of the six cylinder cap of subsidized gas, our induction and induction-related products really took off, we were selling extremely well. After the government withdrew that, the sale of induction cook tops came down. So because of the base effect it looks bad but otherwise the market is growing. The other products are growing.
Q: What about margins, would you be able to stop the erosion in the current quarter or the next?
A: When the top line does not grow much, the margins get impacted as human cost go up all the time. Unless the top line goes up proportionately, we will be losing margins this year.
Q: Where do you see things troughing out both in terms of sales, profit and margins, can it happen in the next quarter? We hear the southern grid and the northern grid will be connected in a year's time, may be next September. So do things sort out as late as that?
A: I really don't know, it all depends on the power situation, the elections, government policy on subsidised gas, Aadhar card. It depends on a lot of things.
Q: There is some fear that you have had to offer higher amount of discounts as well and your pricing power has weakened a tad bit, any update on that?
A: I don't believe that is true. We have not offered extra discounts.
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