Hinduja Foundries to pay dividend first time in 10 yrs

Chennai, May 6 No matter that the net profit of Hinduja Foundries (formerly Ennore Foundries) rose only marginally, both for the last quarter and the full year 2007-08, the company has broken a 10-year-old jinx by recommending a dividend ¡ª of Rs 2 a share. The last dividend of the company was in 1996-97.

Profits were hit because of rise in input costs ¡ª steel and power ¡ª as well as due to fresh depreciation and interest kicking in, consequent to the Rs 150-crore, greenfield plant at Sriperumbudur going on stream.

Incremental interest and depreciation load was Rs 1.72 crore a month, booked since September, Mr V. Sankar, Chief Financial Officer, Hinduja Foundries, told a press conference today.

It was in September that the Sriperumbudur plant began trial production. Commercial production began in January. In fact, but for the new capacity, turnover in the fourth quarter would have been flat. Incremental sales in the quarter were Rs 20.69 crore ¡ª as much as Rs 18 crore came from the sales of products made in the new plant.

But the Hinduja Foundries story is all about capacity additions ¡ª those just completed as well as ongoing (see table).

In three years, Hinduja Foundries will have a capacity of 236,000 tonnes, up from 152,000 tonnes now. This will empower the company to buy its key raw material ¨C steel scrap ¨C in bulk, a big help in reining in material costs.

The company imports about 100,000 tonnes a year currently. When additional capacities kick in, it would ship in 180,000 tonnes. Leveraging this advantage is a key component of Hinduja Foundries' long term strategy. Today, a producer of high-value castings only, the company, sees an opportunity to import more scrap and outsource manufacture of low-end castings. This way, Hinduja Foundries would get into low-end castings also without having to invest in capacity.

There is an opportunity to simply trade in imported scrap, says Mr V. Mahadevan, Managing Director of the company.

Alongside, Hinduja Foundries is also building up a team of designers to offer design services to OEMs. Working in tandem with the design team would be the pattern shop, which can make prototypes in quick time. Mr Mahadevan points to the very high EBIDTA margins in this business.

Another value driver is the Rs 100-crore machine shop that is coming up at Sriperumbudur. When that comes up, Hinduja Foundries will be right down the value chain ¡ª from design to machined products.

Mr Sankar said that proposed investments would be funded partly by raising equity. The company recently raised $20 million through a GDR issue and as a consequence promoters' stake came down from 81 per cent to 68 per cent.