The Kiri Industries stock zoomed up 11 per cent after it announced a debt reduction plan. Speaking to Bloomberg TV India, Kiri Industries Managing Director Manish Kiri said the company is set to reduce debt and post better earnings in FY17. A rise in dye prices due to a closedown of the world’s largest dye maker in China will help Kiri improve profit margins in FY17, he said.

What is the total debt on your books? What is the debt arrangement that you have got? And what is the plan from here on?

The total debt on the books was around ₹852 crore by closing of 2015. By end of March 2016, we reduced it to ₹410 crore. And in the coming year there would be further reduction and there would probably be also another ₹200 crore reduction in debt during this current year.

How is this debt reduction happening?

If you recall, the company went through financial distress and the debts of the companies were bought out by the assets reconstruction companies (ARCs). So we did a settlement with ARCs and that is how the reduction took place and some of the payments were made. The schedules were decided and this is how the future reduction will also take place.

Your operating cash flows are negative. Why is it that you don’t have positive operating cash flows? You seem to be borrowing ₹120 crore, which is showing in your books…

If you look at the interest that we have been paying throughout the year, it was the main reason for the negative cash flows. But if you look at the last two quarters, we have already turned into positive cash flows. I have to look at those numbers but I don't think there were any borrowings in FY15.

Can you elaborate on your product range? What were the prices now and at the same time last year?

We have two major division of products-dyes: intermediates and chemicals. The intermediates which are used for producing dyes and these intermediates were priced in the range of ₹300 to ₹350 per kg and it has significantly increased during the last one month due to the closedown of a major plant in China, which was the world’s leading supplier. There were other plants in China which also closed down. I think we are getting the benefit of that because the entire market fell short of the products supplied from China.

In FY17 you plan to reduce your debt considerably. How is business looking like at this point? What is the outlook in terms of market share? How is the pressure on supply side given the slowdown in China?

Our interest cost and financial charges would be significantly down going forward. That would be the number one advantage. The second factor, which relates to our performance, is how long will these high prices last.

And till the period it lasts, it will again be giving us better margins. Number three, our average EBITDA in the industry will be somewhere around 11-15 per cent and last year also it was around 11 per cent.

But now, looking at these high prices and assuming that this will continue for six months, we might have EBITDA margins of close to 18-20 per cent. But it again depends on how long will this good period last and what progresses is happening in China in the coming months.

Will you post net profit in this fiscal as your interest burden is still high at ₹70-80 crore?

The high interest cost was the main reason for lower profits. But reduction in debt this fiscal year from ₹853 crore in FY15 will also reduce our interest costs.

The high debt was mainly due to a high derivative loss of ₹250 crore, which was converted into loan. That loan amount ballooned up. We have been working on reducing the debt burden in the last two-three years.

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