Mr. Abhishek Dalmia

Kindly give the background of the company as such its important historic details and evolvement to the present time.
The company was incorporated as a private company on May 30, 1977 under the name of Revathi Equipment Private Ltd and started its manufacturing operations at its present location at Coimbatore, Tamil Nadu, India.  

Subsequently, the company was converted into a public limited company on November 4, 1977 and entered into a technical and financial tie-up with world renowned Chicago Pneumatic Tool Company (CP), USA for the manufacture of water well rigs, blast hole rigs, drilling accessories and allied products. Accordingly, the name of the company was changed to Revathi-CP Equipment Ltd. CP was holding 40% of the paid-up share capital of Revathi and Revathi became a division under the Industrial Tools Division of CP, USA. The balance 60% of the paid-up share capital was with the Indian public and various financial institutions.

In the mid 80’s, CP was acquired by another world renowned European giant Atlas Copco, Sweden. Thus by virtue of such an acquisition, Revathi became a group company of Atlas Copco, Sweden.

In the year 2001, the name of the company was changed from Revathi-CP Equipment Ltd to Revathi Equipment Ltd.

In the year 2002, Atlas Copco India Ltd and Chicago Pneumatic Tool Company, USA sold their 40% paid-up share capital in Revathi Equipment Ltd to Utkal Investments Ltd, New Delhi which is a part of  Renaissance Group headed by Mr.A.H.Dalmia. Thereafter, pursuant to SEBI's Takeover Code, the Group acquired another 20% from the public shareholders to take their stake to 60%.

What are your views on the Indian economy and how are infrastructure related companies like you placed in the situation?
If the India story is to be realized, massive investments in infrastructure are imperative. Be it roads, ports housing or urban infrastructure. The Government is alive to this need and is trying to create a conducive policy environment to promote such investments. Some sectors such as roads have already seen some investments coming in and the general direction is positive. We think it is a matter of time before the trickle turns into a flood.

We at Revathi are trying to imbibe skills and technologies that will enable us to play a role in the building of modern India.

Revathi Equipment (Revathi) is engaged in the business of blast hole drills, water-well drills and construction equipments, which are used is the Mining, Water Well and Construction Sectors. How are each of these sectors performing? How is Revathi placed to capitalize on the growth opportunities?
Historically, the mining business, which has been the mainstay of Revathi, has grown at low to middle single digits. While this number could double in the best case scenario, that still only adds up to high single digits growth, which by no means is enough to sustainably create wealth.

Water well drilling has always been a cottage industry and we do not see that changing in any meaningful way. Therefore, that is not going to redeem Revathi’s shareholders either.

The construction sector has the potential to witness significant growth. Having said that, it is a relatively young industry and is likely to witness many twists and turns before the eventual winners emerge. We hope to be one among the last men standing, but it is too early to say what challenges we will have to overcome to reach that exalted position. We do hope that we will be able to leverage our technology and cost structure to pose a credible challenge to the existing players. Hopefully, the industry players will not get desperate in their bid to top the market share league tables, for that will cause the returns from this business to evaporate.

Who are your major user industries? How are they performing and expected to perform in the next 12 months?
All mining companies, standalone or housed in mineral processing companies are our customers. To elaborate pure mining companies such as Coal India and NMDC are our customers. Also, integrated players such as TISCO and Sterlite, who are also into mining, are also our customers. Our equipment more or less covers the entire gamut of mined ores including coal, lignite, iron ore, bauxite, limestone, zinc, etc.

Clearly, most of these companies have announced major expansion plans in the hope of being a force in their own industries. Given the likely demand for these building blocks of our economy, it is quite conceivable that the announced plans will fructify in due course. With expansion, the need for mining would go up proportionally to the main activity of ore processing.

How are you placed compared to your competitors like Atlas Copco, Eimco Elecon and TMG etc?
Both Atlas and Eimco are strong companies, with decades of experience in the field of mining. We respect their competence and strengths. However, having been in the business for about three decades now, we quite fancy our chances of continuing to be a serious player in the future.

In 2002, Utkal Investments bought out the complete stake of Atlas Copco (40%) and gained complete control over Revathi Equipment with a 60% holding. Since then how has the company evolved? Compared to the MNC professional promoters, how well is it managed by the current Indian promoters who are perceived as mere investors?
Our results speak for themselves. We leave it to the shareholders to judge the performance of the company under the new management.

We see ourselves as a good blend of family ownership and professional management. The family ownership allows us to take a long-term view about the business without unduly worrying about short term results and the professional management allows us to drive system efficiencies to stay competitive in the short run. While we do see ourselves as investors, we are also businessmen. Therefore, we wear two hats and as the revered Warren Buffett has said, being an investor has helped him become a better businessman and being a businessman has helped him become a better investor. We feel the same way. Probably, wearing both hats places us in a unique position, unlike many other family owned businesses.

The management is looking out for additional business opportunities to invest their surplus capital, and until such opportunities are available to the company, they have ventured into the secondary market through investment in equities. In FY 2005, your company’s total investment soared 74% to Rs 42.92 crore. This is also equivalent to 66% of the company’s total revenues for FY 2005. Investments in quoted equities stood at Rs 7.78 crore and that in unquoted equities stood at Rs 30.02 crore. Where have these investments made? What has been the RoI so far?
Over the past few years, a significant portion of our free cashflow has got invested into wind turbines. The surge in fixed assets is mainly on account of those investments. Besides being fiscally attractive, these investments have also allowed us to diversify our revenue and profit base out of the environmentally shunned coal. Our investments should allow us to earn a meaningful portion of our future cashflows by producing clean energy through wind.

Our equity investments have been quite small compared to the net worth of the company. Given our background of being equity investors over many years, it was the most sensible thing to do until we find other opportunities to deploy capital on a more permanent basis.

With this kind of huge investments (66% of sales) it is difficult to bifurcate the company in to a manufacturing or an investment company. Your comments.
When we took over the controlling stake in the company, it was our stated stand that it is quite likely that the company would metamorphose into an investment vehicle over time. We still hope that we are able to do justice to that statement made over three years ago.

Once the profits start flowing from multiple channels, investors could either do a sum-of-parts valuation to arrive at a fair value or they could use a black box approach and evaluate the rate of growth of earnings, its sustainability, etc. to arrive at their estimate of fair value.

How is the company’s business impacted by the rising or falling crude oil prices?
Mankind needs energy. If one energy source becomes expensive, it will turn to a relatively cheaper source. This has been the main reason for the coal-intensive economies of USA and Australia to decline signing the much talked about Kyoto Protocol. Eventually, it is very hard to argue with economics. So as oil prices rise, the demand for coal will increase, global warming or not. The demand for mining equipment will move in lock-step with the demand for coal.

Revathi has entered into a marketing collaboration with Bucyrus, USA. Kindly provide more on this collaboration and the expected benefits to both the companies. How would the margins be in this business compared to the normal business? How would it contribute to the company’s top and bottom lines?
This is a global marketing tie-up, wherein Bucyrus will market products manufactured by Revathi. Bucyrus is a 125 year-old American company, which has been producing mining equipment since 1880 and is likely to close 2005 with a turnover of over $500 million. Our companies have known each other for many years and have been talking about a possible collaboration for many years now. The fact that such an old established company has reposed their faith in us speaks volumes about what they think about our capability to manufacture a world-class product. Given the size of Bucyrus, it would probably not be worthwhile for them to spend serious amounts of time in evaluating our capabilities unless they felt that the potential market is significant. It is too early to say anything beyond this.

The company used to be a debt free company. However, FY 2005 balance sheet shows total debt of Rs 44.42 crore? From where and at what cost was the money raised? Where has it been used?
We think a conservatively leveraged balance sheet could enhance the creation of shareholder value, on a risk adjusted basis. Accordingly, we have taken some debt. Most of this debt has been used to either fund the increased working capital needs or fund the investments in wind energy.

What is the company’s capacity and capacity utilization?
Since the capacity depends on a host of factors such as product mix, degree of outsourcing, etc., it is very difficult to comment on such issues.

What is the current order book? How does it compare with the same time last year and that as on March 2005?
We tend not to focus on short-term metrics such as order book. Instead, we focus on sowing seeds, which we hope will yield fruit at some point in the future. While doing so, we do not wish away the need for short-term performance. However, where there is a conflict between showing short-term performance and long-term performance, we prefer the latter.

Any diversification plans?
Quite often diversification is also spelt as diworsefication. We try to be aware of where our strengths lie and how we can leverage them for fueling future growth. The present management team is not and will not be involved in projects that they feel are outside their circle of competence.

Having said that, we are actively looking for investment opportunities, which may or may not be strategic in nature, to deploy the free cash being generated by the present business. As and when such investments are made, they would be more in the nature of standalone businesses with their independent management teams.

Any major expansion plan?
All expansion plans have been announced and include expanding our product range, expanding markets to include the global market and getting into concrete construction equipment.

Any buyback or equity increase plans?
We do not have any plans to dilute equity at this point. However, if at some point the market price of our stock falls to levels, which in our view represent a significant discount to fair value, we could come out with a share buyback plan.

What is your guidance for the FY 2005-06 and FY 2006-07? What would be your dividend policy?
We do not think we (or for that matter, anyone) is/are capable of predicting the future. We try to focus on doing the most sensible thing every day. We believe if we focus on the present, with an eye on the future, the future should turn out okay.