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DSIJ Interview with,Subrat Nayak CFO, Mirc Electronics Limited


Subrat Nayak 
CFO, Mirc Electronics Limited 

"We expect consumer durables industry to grow in double digits over the next 4-5 years"

As a CFO of Mirc Electronics, what are your top three strategic priorities? 

Close involvement in strategy, fundraising and investor relations have become three major strategic priorities for CFO in the current dynamic corporate world. The CFO plays a major role in validating the many new strategic initiatives like expansions, diversification and mergers and acquisitions by the company on the financial front. He needs to communicate effectively at regular intervals with investors. The cash flow management at regular intervals and assessing the requirement for raising funds by way of debt or equity and implementing the same to ensure smooth functioning of the organisation. 

Your company has witnessed turnaround in net profit for FY18. We would like to know what strategy helped you to register this performance? 

Over the last 2-3 years, we have undergone a turnaround by having good controls on our costing and revamping our operations by bringing in lots of automation at the plant and working on expanding our distribution network. We have adhered to strict bottomline approach, reduced debt and saved on interest cost, a one-time golden handshake with employees have substantially saved the cost, discontinued loss-making products like mobiles, grown in new segments like washing machines and the pie of air-conditioners has been increasing. All these steps have resulted in Rs.23 crore profit for FY18 as compared to the loss in FY17. We are the only large Indian player in the consumer durables segment growing at good growth rates. We are confident of growing at 20% during the current financial year. 

You have reduced your borrowing significantly in FY18, what kind of debt proportion are you targeting in total capital? 

Our total gross debt has come down considerably to about Rs.50 crore in FY18 from Rs.165 crore in FY17 on account of improved cash flows during the year and fund infusion from Lucky Securities to the tune of Rs.90 crore. We would be debt-free company during FY19 once the warrants issued to Lucky Securities get converted. Besides, we are in the process of divesting our non-core assets to the tune of Rs.100 crore, which will further improve our cash flow situation in the company. 

Your operating margins have remained quite volatile in the last few quarters. What is your view on the same for FY19E? 

The operating margins have improved in the last couple of quarters during FY18. We have reached EBIDTA margin of 8%, which is the industry norm and we would comfortably maintain these margins. As consumer durables business is seasonal, we have to look at year-on-year margins rather than quarter-on-quarter margins. At the upper level, we have reached our PAT margin to 4%-5% and we would continue to maintain the same going forward. The quarters consisting of Diwali and summer vacations would be bulky because of television sales during Diwali and air-conditioner sales during summer. 

Due to rising disposable incomes and availability of credit facility, the demand for electronic is expected to rise. How do you plan to encash this opportunity? 

The rise in urbanisation and disposable incomes in rural and semi-urban areas has been very important factors for us to increase our sales. Moreover, given the growing electrification across India, availability of credit facility, demand for electronic goods and effective roll-out of GST/E-way bills, we expect the consumer durables industry to grow in double digits over the next 4-5 years. The penetration level in washing machines and air-conditioners is well below 5% in India, and as compared to China and other developed markets, penetration the level is way below. This is the major driver for increase in demand for consumer durables in the country. With increasing population of ‘double income, no kids' in the country, the need for consumer durables is increasing day-by-day. 

Can you tell us about your divestment plan and how you will be utilising these funds?

We are in the process of divesting our non-core assets across India worth Rs.100 crore. We have identified these assets and have initiated the process for selling these assets. We will use these funds for our working capital purpose, which will reduce the debt even on our increased revenues in the coming years.

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