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Mr V. Mahadevan, Managing Director, Ennore Foundries Ltd, at a press conference in Chennai on Thursday - BijoyGhosh

Chennai May 3 The impact of additional interest and depreciation for the current year consequent to the new capacity creation may cause a dip in Ennore Foundries' EPS for the year. The burden of interest and depreciation is estimated to be higher than the contribution of the new project to the bottomline.

Chennai-based Ennore Foundries saw its turnover for 2006-07 jump 20 per cent over the previous year to Rs 395 crore.

For the current year, Ennore Foundries expects a 25 per cent jump in its turnover. Mr V. Mahadevan, Managing Director of the company, said at a press conference here that the Rs 150-crore, 50,000-tonne, greenfield expansion project at Sriperumbudur was going on as per schedule and was expected to commence commercial production in August. He said that the market was booming so much that the plants were functioning to full capacity.

However, the impact of interest and depreciation will be more than the contribution from additional turnover from the new plant. In the last two years, the company did not have to bear the financial burden of the capacity expansion project because it was capitalising the `interest during construction'.

The project would be completed in the current year and hence Ennore Foundries would need to charge interest and depreciation to the profit and loss account. Sources in the company estimated the additional interest charges at Rs 8 crore and additional depreciation at Rs 6 crore.

For 2006-07, interest (Rs 4.8 crore) and depreciation (Rs 11 crore) together work out to about Rs 16 crore. Thus, interest and depreciation for the current year would double. Additional sales from the new plant will be about Rs 100 crore. Since the company has been operating on a margin of about 6-7 per cent, the new plant to the bottomline could roughly be about Rs 7 crore.

Therefore, the current year could see a dip in the EPS.

Product focus

While admitting this, senior officials of the company were quick to point out that in the coming year, the full benefits of the expansion projects would be felt, which would be EPS-accretive.

Mr Mahadevan said that Ennore Foundries was exiting low-value products and focussing more on high-value products — such as cylinder heads, blocks and pistons for engines that comply with Euro-IV and V emission standards. Moreover, yields from the new plant would be higher, leading to an increased productivity.

Meanwhile, Ennore Foundries' Chief Financial Officer, Mr V. Sankar, said that the company would borrow $20 million (Rs 82 crore) from the overseas markets. The fully hedged cost of this ECB money would be less than 10 per cent, he said.

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