Vesuvius India; disappointing last quarter The performance for the last quarter has been in sharp contrast to the previous quarters' earnings for Vesuvius India. With thefall in PAT in the last quarter, despite the lower tax outgo (y-o-y) and fall in interest costs, the full year PAT is flat. Fourth quarter operating margins have been the lowest for the entire year, falling from 30 per cent in the second quarter to just 17 per cent in the final quarter. The Q4 fall in profit y-o-y has been 29.5 per cent while the quarter on quarter fall is 17 per cent. The stock lost 7 per cent on the announcement of results to Rs 95.

This performance is is direct contrast to the superb growth seen in the second and third quarters. Lower realisations on continuous cast refractories (CCRs) besides higer material cost have depressed margins in the last quarter. If this is the kind of hit the company takes when there is an adverse price movement for raw materials, then the dual impact of the budget provisions will certainly put ressure on margins.

The budget provisions have widened the duty differential on both imported raw materials and refractories (which is used by steel plants).Earlier, both the raw material and the final product carried custom duties of 30 per cent. This has been changed to an effective rate of 38.5 per cent on raw materials while the duty on CCRs has been reduced to 25 per cent or an effective rate of 27.5 per cent. Atleast 80 per cent of its raw materials are still being imported. And since it is quite unlikely that the level of indiginisation can be stepped up immediately, the first quarter of the current year will be far worse. In addition to the custom duty hit, the rationalisation of excise duty from 15 to 16 per cent will continue to impact margins. So far the company has dominated the market for CCRs but now there is a definite threat from imports. Despite this, the volume growth should continue as more steel plants are switching from the ingot route for producing steel to the CCR route. In the last couple of years, the profit growth has outstripped the topline growth, but this scenario will now change with profit growth turning sluggish.

But sluggishnessin refractory sales will be made up to some extent by some new product launches that are being planned. Now that Vesuvius India has acquired the assets of KSR International (India) following the global takeover of KSR International, by the Vesuvius Crucible Company, USA (parent company), it will now manufacture blast furnace castables in India, which should raise profit growth to some extent.