Mr. Praveen Khandelwal, VP, Corporate Strategy, Gokul Refoils and Solvent Ltd.

Mr. Praveen Khandelwal, VP, Corporate Strategy, Gokul Refoils and Solvent Ltd., is a qualified Chartered Accountant and Company Secretary with 12 year experience in different sectors like FMCG (Edible Oil), Consulting and Education. He has worked for six years with leading edible oil companies in India on various Senior Management positions with track record of successfully leading fund raising exercises in the capital market for various strategic requirements of the Companies. Mr. Khandelwal’s core areas of competencies/major responsibilities include Strategic Planning & Business Development, Mergers & Acquisitions, Financial Restructuring, System Designing & Risk Assessment, Management Information System and overall Administration.

Gokul Refoils and Solvent Ltd. (GRSL) is one of India’s leading FMCG Companies with international presence, dealing in edible oils such as Soya bean Oil, Cottonseed Oil, Palm Oil (Palmolein), Mustard Oil, Vanaspati and Industrial Oils such as Castor Oil. It is an ISO 9001:2000 Certified Company with a wide customer base spread globally. The Company has set up offices in Singapore and Mauritius to facilitate its international trading operations and has an extensive marketing and distribution network for its popular brands "Gokul" and "Zaika" across 20 states in India. With a loyal customer base in various countries across continents, GRSL supplies products to United States, South Korea, European Union, China, Singapore, Indonesia, Malaysia and Vietnam. The Company owns four production plants equipped with latest equipment and technology in the states of Gujarat and West Bengal in India.

In an exclusive interaction with Hemant P. Maradia of IIFL, Mr. Khandelwal says, "We expect a 60-70% growth in FY11 topline at Rs42-45bn and an 80-90% increase in bottomline at Rs750-800mn."

Could you take us through the factors that led to the strong performance in the April-June quarter, especially in the topline?
The period between April-June’10 was a quarter of sustainability and growth for Gokul Refoils & Solvent Ltd. During the quarter, the Company posted a 70.95% rise in net sales at Rs8.74bn compared to Rs5.11bn in the corresponding quarter last year.

The net profit during the quarter grew by 55.29% to Rs100.6mn compared to Rs64.8mn in the corresponding quarter last year. EBIDTA during the quarter rose by 52.31% to Rs352.9mn from Rs231.7mn in the corresponding quarter last year.

The increase in the topline was mainly because of additional revenue from our newly started Haldia plant and Castor segment. The rise in the bottomline was mainly because of operational efficiency at all levels, including savings in raw material costs through effective procurement, better realizations through retail marketing and branding efforts, and savings in financial costs on account of better fund management.

Further, the Company cemented its strategy of creating an integrated, sustainable food company by capacity expansion through new manufacturing plants and deeper penetration into urban and rural India through a retail distribution network.

Do you see the momentum continuing in the remaining quarters of FY11? How do you see the outlook for FY11?
The outlook seems very positive right now. We expect a 60-70% growth in topline at Rs42-45bn and an 80-90% increase in bottomline at Rs750-800mn for FY10-11.

This year, we are in the process of expanding our total capacity from 19,14,000 MT to 23,64,000 MT. To this end, recently we installed a 1,100 TPD refinery at our Haldia facility and also expanded our Gandhidham Refinery and Fracination plant and related utility facilities to a capacity of 400 MT / per day.

We expect the Haldia unit alone to add Rs9bn to our topline this fiscal. Apart from direct increase in revenues from expanded capacities, Logistical cost saving/Sales tax exemption benefit at Haldia plant and better realizations from retail pack sales would result in significant increase in company’s margins.

In view of the increasing demand of Kachi Ghani Mustard Oil, we are setting up an ultra modern Chillex plant at Sidhpur with a capacity of 200 TPD. Additionally, we have set up a new 200 TPD castor refining facility at Gandhidham, to meet the increasing demand for castor oil. Further, we are expanding our castor seed processing capacity by 700 TPD, castor extraction capacity by 400 TPD and castor refining capacity by 200 TPD.

We expect the benefits from the expanded capacities to reflect in the Q3 FY11 numbers.

Other factors like focus on branded retail segment sales, which is a higher margin business, would also drive the growth of the company. For this, we plan to go in for aggressive branding this year with annual adverting budget of around Rs 50-60mn.

With increased installed capacities and newer capacities to come in the near future, GRSL is very well positioned to reap the benefits of the buoyancy in the edible oil industry in India and globally.

What kind of challenges do you see going ahead? How do you see raw materials costs and wage costs unfolding in the coming quarters?
We are in the process of sizeable capacity addition, which we believe would increase our profits substantially. Any significant delay in the execution of our expansion plans could adversely impact our profits.

A competitive environment is another key challenge that any company faces while growing. GRSL operates in a highly competitive environment and other existing players are ramping up their capacities and market share. The company enjoys market leadership position in the Gujarat, Eastern, Northern, Northeastern states of India.

Currently, GRSL has no presence in the Maharashtra and southern parts of India. In that sense, it lacks geographical reach. However, the Company is looking at expanding its reach and plans to foray into newer markets.

GRSL faces competition from substitutes (edible oil brands) in the urban markets. However, it is tackling this by aggressively branding its products and advertising in a big way.

As edible oil prices have direct correlation with crude oil prices. The volatility in crude oil prices has a direct bearing on edible oil prices in the international markets as well as in the domestic market.

Any adverse movement in edible oil prices can lead to a negative impact on margins. But, chances of such an event happening in the near future looks slim because of the steady rise in demand for edible oils, increasing edible oil prices and increasing diversion of edible oil into bio-fuels.

What measures are being taken to arrest the rise in expenses under various cost heads?
With the start of our Haldia plant, we are in a better position to reduce our procurement and logistic costs. Earlier, we were supplying to Eastern and North Eastern states from our Gandhidham plant while sourcing raw material - primary CPO - from East Asian countries like Indonesia and Malaysia to Kandla port. But now proximity to the Haldia port (East coast) from Indonesia and Malaysia as well as from Eastern and Northeast markets of India has resulted in significant cost savings for us.

Of late, the Company has been undertaking backward integration initiatives into power plants and windmill. This will enable the Company to reduce the power costs.

You have announced plans to set up a thermal power plant near Surat in partnership with GMDC. How is that going to help the company?
We are setting up the thermal power plant essentially to meet our captive power requirement. At present our total power requirement is between 15-20 MW and we expect this to go up to around 25 MW in near future.

The power plant, in collaboration with Gujarat Mineral Development Corporation (GMDC), is being set up in Tadkeshwar district of Surat.

GRSL and GMDC both would benefit from this plant in terms of cost savings as the captive user would derive power from the project at Rs.3.40 per unit as against the grid rate of Rs 5.50 per unit. This will thus help us save as much as Rs2.10 per unit, which is quite significant.

Thus the company is expecting to save through its thermal power project, which in turn will help increase revenues in future.

What is the total cost of the power project? What is the debt-equity ratio? How do you plan to fund the project? Have you tied up debt portion?
As a strategy towards backward integration, GRSL has formed a JV with GMDC to set up a 80 MW lignite based thermal power plant adjoining Tadkeshwar in Surat district.

In the JV, GRSL holding will be 74% and GMDC will hold the rest of 26%.

The plant would be set up on 61 hectares of land, which has already been bought, with a total project cost of Rs4.6bn. The equity portion is approximately Rs1.4bn, with around Rs1-1.05bn being arranged by the Gokul Group.

Basically, the project would be funded through a mix of debt and equity in the proportion of 70 and 30. We are in touch with a lot of financial institutions for the debt portion and financial closure of this project is expected by the end of FY11.

When will you start construction on the power plant? When will you complete the project?
The plant will be operational within a time span of around 30 months and we expect to see revenues from the project from 2013 onwards.

What will be the share of the power generation between the two partners? Will there be any excess power available for sale to state grid?
The total capacity of the plant is 80 MW; out of which 55 MW is for the captive purposes for both GMDC and the Gokul Group.

While GMDC will share 20 MW and the remaining 35 MW will be shared by the Gokul Group.

The balance 25 MW will be available for sale to GUVNL (Gujarat Urja Vikas Nigam Limited) and other parties.

You also have set up wind mills. What is the total power generation from the wind mills? Will you be adding to the wind mill capacity?
As corporate citizens, we ensure that we manage our business in a responsible and sustainable way. Energy savings, green power generation, waste recycle and pollution reduction are some of the key areas where we ensure strict internal control. We strive to facilitate an environment policy framework that enables sustainable development.

Today, GRSL has 4 Wind Turbine Generators (WTGs) with a total power generation capacity of 5 MW in Gujarat along with co-generation captive power plant at Haldia and Gandhidham with the total capacity of 3.4 MW.

The investment in green power is with the aim to create a cleaner and pollution free environment.

Right now, we don’t have any plan for adding to the wind mill capacity but we may think about it later.

What is your total annual production capacity in seed crushing, refining and solvent extraction?
At present, the total annual production capacity in seed crushing, refining and solvent extraction is 19,14,000 MT. We plan to expand to 23,64,000 MT this year.

Our production capacity as on 31st March, 2010 was:

What is the capacity utilization at your plants? Are you planning any capex in FY11?
Our average capacity utilization across units is around 70-80%. Basically, in India it is not possible to run the plants at full capacity because of seasonable domestic crops as well as dependency on imported oils because of huge gap in demand and supply.

From last year till the second quarter of FY11, we already have incurred a capex of Rs2bn, including Rs1.4bn for the Greenfield plant at Haldia, Rs200mn for Refining capacity expansion at Gandhidham and Rs400mn for Mustard and Castor expansion projects.

Now for FY11, we are looking at further capex related to our power plant only.

How much input is imported and how much is sourced from local suppliers? How do you ensure availability of high quality inputs at lowest possible costs?
We are importing about 50% of total input and balance is sourced domestically. We are importing crude palm oil and Degummed soybean oil while Mustard Seed, Soya Seed, Wash Cotton oil and castor seed are procured from domestic markets.

Our Management/Procurements team experience of more than 20 years along with our good/log term relationship with suppliers is the key for getting high quality input at lowest possible costs.

Tell us about your trading and hedging initiatives?
Trading activity is a crucial component of GRSL’s hedging mechanism. We usually purchases raw materials like CPO / DSBO for consumption purposes only. Occasionally the said commodities are traded on high seas due to factors like sufficient stock of raw material at plants, better price realization in the market and expectations of lower prices in the near future etc.

We are having huge import as well as exports too. Our 25% of total import exposures is hedged against exports exposure as a part of normal hedging.

Currency risk is further mitigated by assuming appropriate forward cover on ~40-60% of the Company’s total currency risk on imports.

What is the proportion of exports in total volume sales and revenues? Where do you see this business mix in 2-3 years?
We currently export 15% of our total volume sales and revenue. This is expected to be increased to 20% in 2-3 years.

Give us a break-up of your sales volume? How much of your sales are accounted by the two brands – Gokul and Zaika?
We are having 50% of our sales in branded form which is expected to be increased to 55-60% in this year with our marketing and branding efforts.

Out of total branded sales, proportion of Gokul and Zaika brands is 80:20.

What is the absolute level of debt? What is the debt-equity ratio?
We have approximately Rs1.5bn outstanding as Term Loans and about Rs1.7bn outstanding as working capital facilities.

Our debt equity ratio is less than 1.

Are you open to inorganic growth opportunities? Are you looking at any acquisitions?
As a part of our long term vision, we are looking to set up a 1000 TPD refinery each in Maharashtra and along with the South East coast.

We are open to inorganic growth opportunities, including acquisitions of any company/plant in Maharashtra and South India.

We are a growing company and are always open to profitable growth opportunities as and when they present themselves.

What is your message to the shareholders?
We have the aim to become one of India’s leading FMCG led edible oil companies having a reach to every kitchen. We also plan to have a pan India presence and operations across the globe, besides developing the most preferred and admirable edible oil brands and creating best value propositions to investors, vendors and the society.

It is our mission to create value for our shareholders by building a company which inspires trust in its stakeholders based on sound financials and consistent performance.