Essel Propack received approval to merge EP Lamitubes (the wholly owned subsidiary of Essel Propack) with Essel Propack and their respective shareholders from the Bombay High Court. Speaking about it Ashok Goel, VC & MD, Essel Propack told CNBC-TV18 that the merger will cut administrative cost related to overseas investments and help imrove profits. The company is also planning to undertake more restructuring.
Below is the transcript of Ashok Goel's interview with Reema Tendulkar and Sumaira Abidi on CNBC-TV18.
Reema: This is a 100 percent subsidiary of the company. So how does this merger helped the company, would your financials changed in any way?
A: This helps in two ways, one is that it is a 100 percent subsidiary which held some overseas investment for us so by merger it will reduce some administrative cost and hassles. Besides that what we will do is that we are recording the assets at book value. So the differential of the asset value and the book value to the extent of Rs 275 crore will be adjusted against share premium account. Therefore to that extent, India's standalone networth gets reduced. What it means is that it will probably help improve our profit quality that means ROC and ROE.
Reema: The India standalone networth comes around by Rs 270 crore?
A: Yes.
Sumaira: Are there any more such restructuring exercises that you are planning or is this a one off?
A: There are a series of restructuring exercise that we have planned but unfortunately I cannot reveal because the regulations do not permit me to talk about them. But as we go along towards the end of year, hopefully we will have some and next year couple of them.
Reema: I believe the company has operations in Russia. Can you tell us what the revenues as well as the EBITDA that the company generated from Russia and on the back of all the political developments how will those numbers in revenues and EBITDA change?
A: Russia for us is fortunately a small operation which is a never-made money. So this year we were hoping to stop making losses but because of the sanctions and all our efforts therefore will not yield results. Fortunately for us, we did not have any forex exposure in Russia and therefore we are saved from that angle.
Reema: Can you tell us what the revenues will from Russia?
A: That is very small, it is about USD 3 million which is not significant.
Sumaira: On the flip side, the fall in crude prices would be aiding a company like yours, so can you tell us how much can you quantify what could be the benefit that you would see and when?
A: It will be difficult to quantify at this moment but what happens is that by the time we shrink our pipeline of the inventories, the actual effect of the lower prices start to come in but on the other hand, we have had huge surge in human resource course and also energy course. So we hope that partly it will be compensated to that extent. So at the moment it will be difficult for me to predict any specific number so to speak.
Reema: Why not change your FY15 profit growth guidance? You have guided for 20 percent, in the first half of the year, you have done about 24 percent profit growth and we are just about three months left from ending the year, so why not change your guidance now or do you not have the confidence based on how Q3 and Q4 is expected to pan out?
A: It is not the confidence to be very specific, it is that Q3 numbers because of the Christmas holidays across the globe and the seasonality involved. We expect the growth in Q3 will not be as significant as it has been in Q1 and Q2. Therefore, we are tapering our expectation for the full year. So it is always better to commit less and deliver more.
Sumaira: What went wrong with your East Asia Pacific operations? You have seen quite a big fall over there in margins on a year-on-year (Y-o-Y) basis?
A: There is nothing wrong that went there. It is just that the consumer behaviour there is shifted a little bit from our individual pack size to our family pack size. As a result the tonnage of toothpaste remains the same or grows but the number of tubes goes down. So there is nothing that we have lost in that sense but yes, there was a reduction in the total tubes that we sold and that we hopefully will recover going forward. We have recovered part of it last quarter and going forward will recover that. On the other hand we have established a new factory in South East of China which is the hub for beauty and cosmetics and so that is a strategic investment for us that we launched on December 4 of this year.
Reema: How are the early signs of FY16 and will it be better than FY15?
A: Yes they should be. Having said that, keep the base in mind that this year we have grown significantly. So 15 percent topline growth, 20 percent bottomline growth we still maintain. The quality of profits will improve significantly.
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