Expect rural demand to pick up substantially: Orient Papers

ML Pachisia, managing director of Orient Papers, in an exclusive interview with CNBC-TV18 said, he sees demand picking up this week onwards. Paper prices, he said, prices had improved to a large extent but he sees further price increase in the short-term.

Pachisa added that he expects rural demand to pick up substantially, while he also sees a 30% volume growth in electronic consumer durables.

Below is a verbatim transcript of the interview.

Q: Your cement division profits have come off significantly; can you take us through what is going around in the markets that you sell in and by when you expect some recovery?

A: Our cement performance for the last quarter has to be seen in the context of whatever has happened in the South India cement space and in spite of the fact that the profits have been lower than our previous years or any previous quarter, I think we have done amongst the best in the South Indian space. The cement prices have gone down substantially during that monsoon period—heavy monsoons lower demand large in capacities but all the same because of two factors. One, our cost structure is generally amongst the lowest in the industry and second, we have had 31% growth even in the last quarter in our cement volume in spite of the fact that Andhra was minus 4% and Maharashtra grew only by 8%. We have been able to increase our market share. These two factors have helped us to perform better than most others.

As far as current situation is concerned the prices have been improved to a large extent. However, the demand in its full swing is yet to come back. There were festivities in all these areas and now I believe that from this week onwards demand should also start picking up post monsoon. Everybody expects that since the monsoons have been very good the rural demand will pickup substantially.

Last year the rural demand was the one which helps cement industry so we do expect the demand to pickup gradually and that should help the cement industry in the south as well.

Q: By how much have prices moved up and by how much do you expect them to firm up by the end of this year if at all?

A: The prices in South have more or less gone back to where they were before the fall took place; they had gone down by Rs 50-60 per bag, they have recovered Rs 30-40 already. Right now we are not considering any further price increase in the short-term, let the demand pick up and as and when the demand picks up in full swing we will see. But right now we are working at a reasonable level of EBITDA margins and we do expect the Q3 to be substantially better than the Q2.

Q: What about the paperboard division. Take us through the segmental performance there and what you can expect going forward?

A: The paper division for the Q1 and Q2 quarter had suffered because there was water scarcity in that area. It has now back in full swing and at the same time we have finished construction of a very large water reservoir to take care of future water security. We have created water reservoir for 250 million gallons which will last us for two months during the summer season.

This was not the case earlier for our paper division but the last two years because of very scanty monsoon in that area we have face this problem so hopefully next year onwards we should not have this water problem. Right now paper division is doing reasonably well. It should get back to its normal performance when it was amongst the top four-five paper companies in the country in terms of EBITDA percentage.

Q: For the electrical division while your volumes are growing at a smart rate, the margin seems to be under a lot of pressure because of raw material price hikes?

A: That's true in case of electrical division; again we have had more than 30% growth in volumes in the fans division. However the price of copper, aluminium, steel have gone up substantially from the levels ruling in the last year and therefore the margins are relatively from the last year's level which was an exceptional year, relatively the margins are lower however the margins are fairly satisfactory and for this division the major season is that in the last second half of the year so substantially we expect both volumes and margins to be better.