Mr V.G. Jaganathan, President of Finance at Sundram Fasteners, says that the company's debt-equity ratio stands at around 1:3. Mr Jaganathan further says that the company's debt portion is expected to increase, thanks to increasing working capital, increasing capital expenditure and new investments. He rules out the possibility of an equity issue right now. Excerpts from CNBC-TV18's exclusive interview with Mr Jaganathan:

While the company has seen a growth on turnover, on the net profit front there has been a substantial hit on account of interest cost, which has gone up from almost about Rs 8 crore last year to Rs 17 crore in FY06, can you give us reasons for this?

Interest rates have gone up all over the world, more so in the case of the dollar.

What is your debt-equity ratio right now?

It is around 1:3.

Are you looking at resting this interest cost going forward in FY07? Are you looking at repaying some bit of that debt?

No, actually debt will increase with working capital increasing, with capital expenditure increasing and with new investments.

Would you be looking at balancing that with a bit of an equity issue?

There is no chance at all of an equity issue right now.

Tell us the picture going ahead for FY07 because like you said you have got high interest cost, you have got the movement of forex, which will affect your exports, plus you have got raw material costs, which will impact your margins.

What is the kind of performance we can expect in terms of numbers?

Actually volumes have increased. If you really look at the operating profit, even last year, they have gone up by about 12-14 per cent. Operating profits are better, which is because of increase in volumes but margins are still under pressure with steel cost rising, with aluminium prices rising. Margins have been under pressure and interest costs have only added to the pressure. I expect interest costs to go up further because the RBI has increased interest rates in the recent past and it is likely to do so in the near future. Additional volumes are rising from domestic market sales, and additional exports will partly compensate.

(This article was published in the Business Line print edition dated June 20, 2006)
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