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00:00Hello and welcome.
00:09You're watching the Small and Mid-Cap Show here on NDTV Profit.
00:12I'm Harsh Saita.
00:14Let's quickly bring on board the first management
00:17for the day I have with me, Tushar,
00:19to talk to us about SEAT as well as to host this conversation.
00:23Tushar, talk to us about SEAT's numbers first off.
00:26And then let's bring on Mr. Banerjee, who's
00:28the director and the CEO at SEAT,
00:30to talk to us about the numbers as well.
00:33So if you just look at the numbers straight away,
00:36both revenue and profit went up on an annual basis.
00:38But there was an operationally, the performance
00:41was not up to the mark.
00:42The company is saying that's due to higher input costs,
00:47commodity costs.
00:48But the growth is coming on the back of replacement demand
00:51as well as improving exports.
00:54So essentially, now when we speak with Mr. Anil Banerjee,
00:56he's the CEO of SEAT, we'll get more color
00:59on what the quarter was like for the company and the way ahead.
01:04So Mr. Anil Banerjee, welcome to NDTV Profit.
01:09Good morning.
01:10Well, thank you.
01:11Yeah, so revenue is up.
01:13Net profit is up.
01:15What explains the margin hit in Q1, sir?
01:20The margin hit is primarily on account of input cost.
01:24If you look at natural rubber, which is at 209 rupees per kg
01:27as we speak, it's at a 13-year high.
01:31And there's been a significant inflation
01:34in a short span of three to four months from about 150, 160
01:38to 209.
01:40When inflation happens at a gradual level,
01:43we can manage the margins better.
01:45If it happens at a very steep gradient,
01:49then there's a hit in the quarter,
01:50which is what has happened by way of margin squeeze.
01:54There has been provincial rains down
01:56in the southern part of the country.
01:58Tapping has been low.
01:59And as you know, in the import markets,
02:01the container availability situation is very bad.
02:04So the lead times to have imported rubber land up
02:07in our country has gone up.
02:09And some speculative activities, therefore, might be going on.
02:13We expect this to reverse by August, September of this year.
02:18And even out in the second half, tapping
02:20is going to bring a lot of more rubber quantities in the market.
02:25And the container situation is also
02:27going to even out, hopefully, by August 10th.
02:30So we expect this situation to reverse sometime
02:33starting August.
02:34OK, so is the margin hit due to the import cost
02:37large enough to offset the premarization
02:40that you're actually witnessing in the tire space,
02:43specifically in the four-wheelers market?
02:46Absolutely.
02:47The impact is about, if you take quarter four to quarter one,
02:53the price hike, the raw material price increase
02:55has been almost 5%.
02:58And we have been increasing price
03:00in the replacement and international markets.
03:03A, they are coming with a lag.
03:05And therefore, in a quarter framework, when there's a lag,
03:08there is always a hit on the margins.
03:10In the OEMs, our prices are indexed
03:12to underlying raw materials.
03:13And it comes with a lag of one quarter.
03:15So the quarter one price hike, which we saw in raw material,
03:18will impact the indexed price in quarter two.
03:23So that's the reason why you see the gross margin shrinking
03:28by about 2.5% to 3%.
03:31And it will continue in quarter two to some extent,
03:34because quarter two raw material prices
03:36will be higher than quarter one by about, again, 5% to 6%.
03:41But most of the price hike impact
03:43will be seen in quarter two.
03:45OK, so let's extend this conversation a little bit more.
03:51We are seeing an inventory build up in the auto space as well.
03:55Sources tell us that the auto car market is actually
03:58sitting on about 7 lakh units.
04:00Does that in any way impact you as a tire company?
04:05At a global level, at a general industry level, yes.
04:09But particularly, as far as SEAT is concerned,
04:11I think you're referring to the passenger car stockpile up.
04:15So there we have sales visibility
04:19because of the fitment in new models
04:22that are going to roll out with SEAT tires by the OEMs.
04:26So we are expecting a good growth.
04:28Actually, in quarter one, OEM was subdued.
04:31OEM growth was subdued, low single digit.
04:33This is going to take off for us in quarter two, quarter
04:36three, and quarter four, especially in the second half.
04:39The two-wheeler OEMs are growing very handsomely at about 20%
04:43So there is no stock build up there.
04:45And we expect to enhance our share of business in two-wheeler.
04:48The MHCV segment is going to come back after now
04:51that the elections are over.
04:53By end of quarter two, mining activity, construction activity
04:56is going on well.
04:58So we expect OEM sales in MHCV also
05:02to be good for SEAT in quarter two as well as in second half.
05:07You mentioned in the statement accompanying the results,
05:10you're front-loading CAPEX.
05:12Talk us through the CAPEX plans and how
05:14it fits with the global expansion plan, sir.
05:18Yeah, so we expect overall good growth in the demand situation
05:24as well as our investments in marketing
05:26and hence in the market share situation for SEAT going
05:30forward in quarter two and second half.
05:33We have already grown in first quarter
05:36in double digits in replacement and IV.
05:38This will strengthen.
05:39We have a very, very good order visibility
05:41in international business.
05:43And our investments in marketing and crafted
05:46for the Curious campaign for four-wheeler
05:49is going to start having impact as we
05:51go into the second half.
05:53We have given a CAPEX guidance of about 1,000 crores
05:56for the year.
05:57And the first quarter has seen a CAPEX incidence
05:59of about 254 crores.
06:01We are sold out on truck-bus radial.
06:04The truck-bus radial new capacity at Chennai
06:06is coming around from August, September.
06:09So that will bolster top line.
06:10Our agri-radial, which is a very, very profit-accurate
06:14business, we have now done with the first part
06:18of the project, which takes our capacity to 105 tons.
06:21Our capacity utilization is low at 65 tons.
06:24We expect this to be utilized over the next few quarters,
06:28two to three quarters.
06:29So very bullish on top line, especially
06:32in the profitable segment.
06:33And hence, the CAPEX is being front-ended.
06:36All right.
06:37Another point that you talked about
06:38was strategic price adjustments.
06:40I dwell on this because of the fact
06:42that we have seen some price hikes by the competition.
06:45So what is the strategic price adjustments
06:47that you're talking about, sir?
06:51When we talk about price adjustments,
06:53it is about relative pricing vis-a-vis the competitors.
06:57And we will take a call mostly on the passenger side.
07:00We have been taking a call over the last two quarters already.
07:04As I keep mentioning, there is a great deal
07:06of pricing independence amongst the players right now.
07:11Not only SEAD, in the industry as such,
07:14I think depending on the strength of various players
07:16and in different segments and different product markets,
07:20the pricing decisions are not totally independent,
07:23but it is becoming independent and less
07:25dependent on what other competitors are doing.
07:28So we are going to take some calls, mostly
07:31on the passenger side as we go along.
07:34International is anyways independent.
07:36So we have a little bit more freedom
07:38in taking pricing calls.
07:40OK, so your last price hike was in May.
07:43When can we expect the next one, in the next quarter
07:45or the next couple of quarters?
07:47No, no, we definitely took a follow-up price increase
07:50in June.
07:51We have taken another soft price increase in July.
07:54There will be price hikes in small bits
07:58right through quarter two.
07:59That's across the portfolio?
08:00CVs, passenger vehicles, as well as two-wheelers?
08:03Across the portfolio.
08:04All right.
08:05Finally, we are seeing some changing rules on tire imports.
08:09DPIIT, actually the Investment Authority for the government,
08:13actually had said that they are allowing some foreign players
08:16to come into the market.
08:17How, like Goodyear or Michelin to come into the market,
08:21how does that impact you, sir?
08:23Especially when you are actually going abroad
08:25and those players are actually coming in.
08:28So where do you fit in?
08:31See, India is a miniature global market
08:35because all the important foreign players are already
08:38selling significant amount of tires already by way of import
08:42or by actually manufacturing the tires in India.
08:45And we are a strong player in international markets.
08:48About 20% of our sales comes from international markets
08:51where we face competition from all good brands who
08:55have significant investments in R&D and technology
08:59in markets like Italy, France, Germany, and now in US, Brazil,
09:03et cetera.
09:04So we welcome competition.
09:05And I think the consumer will get the ultimate benefit.
09:11So it's not a big change from our outlook.
09:17We move on.
09:18We've got another management in focus, Vascon Engineering.
09:21The company has recently divested 100% of its stake
09:23in GMP Technical Solutions.
09:26I had spoken with the management earlier.
09:28And I began by asking the management
09:30about the divestment in particular.
09:33What's the road ahead?
09:35All of that.
09:36Listen to a slice of that conversation.
09:40GMP is a company that we had acquired in 2010.
09:43And at that time, it was typically
09:47making clean room partitions, which
09:49are used in semiconductor industries,
09:51in pharma industries, and hospitals,
09:53and operation theaters.
09:55And we used it to back end our strength of construction
10:00in these projects in our EPC division as well.
10:05And we grew it over the years.
10:08And now, over the past few years,
10:10we have been slowly hiving off our non-core assets.
10:15We already did that with our hotel in Goa
10:18as well a couple of years ago.
10:20So this was part of our strategy.
10:22And it's finally bearing fruit.
10:25Understood.
10:25But it's a significant chunk of your top line.
10:29So what does this do to your numbers in terms
10:32of top line going forward?
10:33And how are you going to replace this large hole
10:38in your top line?
10:41So actually, we have been planning this for a while.
10:44And this year, what's going to happen
10:47is that our EPC order book, which is our core business,
10:51itself is going to take care of this hole that has been created
10:55by GMP not being around.
10:57So our order book a couple of years ago in EPC
11:00was less than 2,000 crores.
11:02Today, it's more than 3,500 crores.
11:05So we are looking at this getting covered this way.
11:10Understood.
11:11And with regard to the valuation of this sale,
11:14before I move to the larger business
11:17that you are going to be focusing on,
11:19just with regard to valuations, 157-odd crore,
11:24is there substantially more value in the business?
11:31Because it constituted 30% of your revenue.
11:33But when I'm looking at your market cap,
11:35this is roughly 10% of your market cap,
11:38maybe lesser than that.
11:40Yeah.
11:41Yeah, so this is a growing company as well.
11:44We have focused on the growth of this company
11:46for the past few years.
11:48And we felt that this is the right time
11:51to move our focus from this company
11:55to our core focus, which is EPC and real estate.
11:58And we've been bagging a lot of orders in the EPC domain.
12:02Even our real estate with our foray
12:04into redevelopment in Mumbai requires the capital
12:09to grow both these divisions.
12:11So this was the right time to do it, according to us.
12:15Understood.
12:17And how should one look at the overall picture now?
12:21So you have EPC, of course, as your largest segment now.
12:27And when you're looking at your book,
12:30your order pipeline is also very robust.
12:32How will execution start to play out in EPC?
12:35And how will margins start to play out?
12:39So our EPC, most of these orders
12:42that we bagged in the last year, they have already commenced
12:46or they are at the beginning of commencement.
12:48So we are looking to extinguish this order book
12:52that we have over a period of the next 24 to 36 months.
12:56And obviously, we'll be adding newer orders to these as well.
13:01So we have a good top line that will come from EPC.
13:05The margins over there are generally around 8% to 9%.
13:08But we are focusing to take this into double digits
13:12in the coming years.
13:13Understood.
13:14So roughly a thousand crore odd in terms of top line last year.
13:20Of course, there's going to be a degrowth because of GMP
13:23moving out of that top line number.
13:26But you suggested there's going to be growth.
13:29So talk to us about what kind of growth
13:31can one expect, at least for the next three years,
13:33if you can give us some visibility.
13:36Yeah.
13:36So actually, we won't see the degrowth.
13:39Like I said, we have strategically done this.
13:43So EPC alone, like I said, from an order book of less than 2,000
13:47crores has moved to 3,500 crores.
13:50And on a thumb rule basis, we execute between 25% and 35%
13:56of this every year.
13:58So that itself is like a 1,000 crore top line
14:02coming from EPC alone.
14:04And then we have the real estate division
14:06as well, which will contribute at least 100,
14:09150 crores from there.
14:11So our top line will be better than last year, in fact.
14:15Understood.
14:16And so talk to us about the margin picture
14:19now on EPC as well as on real estate.
14:24Because real estate, you're getting into joint ventures
14:28and constructing.
14:29So there may be some delay with regard
14:32to revenue recognition, which likely might happen.
14:35So talk us through some of those.
14:37And talk us through what real estate projects
14:39are at what part of their journey.
14:43Sure.
14:44So the real estate projects, we've
14:47tied up two redevelopment projects in Mumbai.
14:49Both are in Santa Cruz.
14:51One is in the final stage of approval.
14:54In fact, the society members will be vacating soon.
14:58And we will be starting demolition work
15:00in the next couple of months.
15:02The second project is more nascent.
15:06But again, the documentation is in process.
15:09So we think in the next six months
15:11or so we'll be able to launch that as well.
15:14But before we get to the secondary development,
15:16we have our own project in Powai,
15:20which has a top line of roughly 600 crores,
15:23which we should launch again in the next around two
15:26to three months.
15:28So for Mumbai, the order book is quite robust.
15:32In Pune also, being our home base,
15:36we've done a lot of work here.
15:37And we have a strong pipeline in areas
15:40such as Banerjee and Kharadi at this point of time.
15:44So we'll be launching projects in these zones as well.
15:49So real estate looks good.
15:52And like you said, because of joint ventures,
15:54some of these revenues get deferred in the books.
15:57But we have good amount of projects now
16:01for us to show revenue coming in every year.
16:04So I think we're getting comfortable over there soon.
16:08Understood.
16:09So real estate versus EPC.
16:10Now these are your two core businesses going forward,
16:12if I understand right.
16:14What are the margins typically like in both of these?
16:17EPC, you were suggesting it's gonna be double digit
16:20this year, if I understand.
16:22Yes, so typically these margins in EPC
16:24are around eight to 9%.
16:26And we want to start pushing this upwards obviously
16:30and take it into double digits first
16:32and then grow it even better.
16:35And we have the efficiency
16:36and the engineering background to do that.
16:39So we will be focusing on that.
16:42Real estate typically gives double of this percentage
16:47when it comes to profit.
16:50All right, so that's Raskarn Engineering for you.
16:53Trying to break down what's gonna happen going forward,
16:57but shifting focus to IPOs.
16:59Sunstar, leading producer of plant-based speciality products
17:04opened its IPO today.
17:05Issue price of 90 to 95 rupees a share.
17:08My colleague Sajid earlier spoke to the management
17:11and began by asking about the company's business structure.
17:14Listen into a slice of that conversation as well.
17:18Sunstar, we have two decades of experience.
17:22The first factory was set up in 2005 at the Kutch location.
17:27We set up 2016 the plant at Dhule.
17:30Our cumulative capacity as on date is 1100 tons per day.
17:34We are into the maize-based specialty products
17:36and ingredient solutions business.
17:39We are also expanding at the Dhule location.
17:43The products primarily find applications
17:45within the food industry.
17:47Food is our forte.
17:49A majority of our revenue is being generated
17:51to sales through food customers.
17:54Apart from food, there is a wide array of applications
17:58that we cater to, including pharmaceuticals,
18:00personal care, and animal nutrition.
18:04You know, just to get a thing clear,
18:06it's basically use maize to create products
18:09and derivatives out of it.
18:11And maize meaning makka, basically, that you do.
18:14And its derivatives could be as starch,
18:19which is used in food industry or food beverages
18:23or allied industry, which is there.
18:26How do you source this raw material?
18:28Because this is, you know,
18:31we do have our own production in India,
18:34but a large portion of that is also imported from overseas.
18:39The Indian maize numbers have been growing
18:42at a very robust pace.
18:43The last year numbers were almost 40 million metric ton
18:46of maize production in India.
18:49So we are very uniquely positioned in the fact
18:51that our Dhule plant is at a very strategic location.
18:55The nearby provinces almost add up to 25%
18:58of India's maize-growing regions.
19:00And more and more year on year,
19:03we are seeing increase in maize numbers.
19:06Growing inside India.
19:09Give me a sense of the kind of sourcing that you do.
19:12I mean, is it done solely from the farmers
19:16or you use the mandis or APMC markets
19:19which, through which you buy these?
19:26Because of the quantities that we source,
19:28it is a combination of traders, resellers, stockists,
19:32but what is also very good about the company
19:36is that almost 17% of my total purchases
19:40and 30% of my Dhule plant purchases
19:42are directly coming in from farmers.
19:45So that is also creating a very healthy ecosystem
19:49within the region, in the proximity to Dhule plant.
19:52And year on year, we are seeing an increase
19:54in more and more farmers directly selling to us.
19:58And that is a very good thing.
20:00Directly selling to us.
20:02In fact, last year we had almost 7,000 different farmers
20:07selling their produce to our Dhule factory.
20:10With that, completely out of time on this edition
20:13of the Small and Mid-Cap Show.
20:14Thanks for tuning in.
20:15More on the other side.
20:16Stay tuned to NDTV Profit.