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See slowdown in demand, stagnant margins ahead: Cummins

Author : Date : 2013-8-7 10:18:19
Rajiv Batra, CFO of Cummins India  sees further slowdown in demand as there is no impetus coming in from any other sectors including the power generation segment. 


“This quarter has suffered a lack of demand and it is the entire industrial cycle which is now unwinding and is causing a demand deficiency,” he says in an interview to CNBC-TV18.

Going ahead, Batra does not see margins of the company moving significantly.

The diesel and natural gas engines manufacturer company reported a dismal performance on all parameters with the first quarter net profit falling 8 percent year-on-year to Rs 166 crore .

Below is the verbatim transcript of Rajiv Batra's interview on CNBC-TV18

Q: The top-line seems like a disappointment this quarter, much slow than what was expected from the company. What led to the decline in top-line? Are you seeing some slow down in demand as well?

A: Yes, overall we have declined about 9 percent sequentially on domestic and about 7 percent on exports. Business has been slow. There is really no impetus coming from any of the sectors including the power generation business. This quarter has suffered a lack of demand and it is the entire industrial cycle which is now unwinding and is causing a demand deficiency. The economy today has more capacities than demand and that is what we are now beginning to experience.

Q: Gensets, the key product of the company has registered a fall of almost 25 percent year-on-year and in Q1 itself which generally witnesses a peak in demand due to summer months specifically in the quarter. What really happened on that side as far as demand for Q1 went?

A: The power deficit itself has come down from 8-9 percent to about 5-6 percent. Industries not running at peak impact demand in the power gen business. So, it is trend in industrial production that translates into revenues for us.

Q: You have accounted for cross payment charge of almost Rs 15 crore and that has put little pressure on your margins. Now that the commodity prices have started softening up, how much of a benefit due you see as far as margins are concerned atleast for the next couple of quarters, does the trend continue?

A: I don’t see margins moving significantly, while commodity is beginning to soften our cost line is not seeing any advantage because the exchange rate is taking away more. While world wide commodities have slowed down and softened, India is not experiencing any of it. Our landed cost of whatever we import is substantially going up.

Q: Exports also declined quite a bit this time and your company actually benefits from the kind of rupee depreciation that we have seen. Have there been any currency benefits that you have accounted for as far as the exports revenue number was concerned this quarter?

A: Yes, we will see some of that and exports is on the basis that with some lag export prices are renegotiated for customers and to that extent we retain the benefit with us. You will see some uptick, but over a period of time that is not going to be there.