Rising steel prices won’t hit margins: Titagarh Wagons

Titagarh Wagons is coming out with 2.38 million share IPO with a price band of Rs 540-610 per share. The IPO is open from March 24 to March 27. Umesh Chowdhary, MD, Titagarh Wagons Ltd, said that the company has been able to sustain its margins despite escalating steel prices in the last few years and hopes to be able to do that in the future as well. "We have been able to do about Rs 217 crore in topline in the first half of FY08 and about Rs 25-27 crore of profit in the same period," Chowdhury said. 

Excerpts from CNBC-TV18’s exclusive interview with Umesh Chowdhary:

Q: Can you just start off by talking first about all these investors who you have made some kind of allocation to - what the total percentages that various entities like Blackstone etc hold and whether all of them have bought at Rs 672/share?

A: No, all of them have not bought at Rs 672 per share. We have had a successive round of investors who have come in into the company at various points of time. Blackstone was the last one wherein one of our existing investors actually sold some equity to Blackstone and that was at Rs 672 per share. Prior to that, there was an investment; an offer for sale - it was a secondary transaction that took place wherein JP Morgan bought some shares at Rs 610/share. ChrysCapital came in before and GE came in at different valuations. The last three valuations were - for Blackstone at Rs 672 per share, JP Morgan at Rs 610 share and GE Capital, which was about a year ago, was at about Rs 524 per share.

Q: Give us an idea of the picture really going ahead. You have had very robust margins all of FY07 and the six-months till September as well at about 18% or so. But the kind of increase that we are seeing in commodity prices across the broad, especially raw materials and the metals category for yourself, how do you factor this in or how do you reduce the pressure of that on Titagarh Wagons?

A: Almost all our contracts or most of our contracts are entered into with a price variation clause, which is linked to the wholesale price index of iron and steel. So to a great extent, the increase in raw material cost is a pass through based on the wholesale price index movement of the raw materials. So we have been able to sustain our margins in the escalating steel prices (situation) in the last few years and we hope that we should be able to do that in the future as well. 

Q: Can you give us an idea of the acquisition that you were mentioning? What segment of your business would you be looking at and what company size would you be targeting?

A: We have not firmed up any plans as of now except for signing a cooperation agreement with JP Morgan to present a scheme to the BIFR (Board for Industrial and Financial Reconstruction) for investing and acquiring 51% stake in a company in the wagon manufacturing sector, which is subject to various clearances from the BIFR and other statutory bodies.

But obviously, we would like to be focused on the segments that we are currently catering to and would like to grow in the same segment either in a forward or backward integration mode or something that adds synergy to our existing operations.

Q: You have done about Rs 280 crore in sales and close to Rs 30 crore in profits in FY07? What is the target that you've set out for yourself for FY08-09?

A: We do not make any forward looking projections. We are not even allowed to do that by SEBI. But what we have been able to do in the first half of the current fiscal, that is FY08, is reflective of what we have been able to do. We have been able to do about Rs 217 crore in topline in the first half of FY08 and about Rs 25-27 crore of profit in the same period.