Rise in input cost, dip in realisation turning things bitter

Written by Sanjay Jog | Updated: Sep 28 2009, 05:54am hrs
Rashtriya Chemicals & Fertilisers (RCF), which has clocked a turnover of Rs 8,455.32 crore in 2008-09, sees the current year quite tough due to rise in cost of production and dip in its realisation, especially in the chemicals segment. Apart from the meltdown, drought in over 277 districts in the country has further added to its woes. In an exclusive interview with FEs Sanjay Jog, RCF chairman and managing director Uday Shankar Jha explains company's strategy to take on challenges and pursue its growth plans.Excerpts:

Despite constraints in the availability of feed stocks and increased input costs, RCFs turnover increased in 2008-09. How was it possible

It is true that the company achieved highest-ever turnover of Rs 8,455.32 crore compared to Rs 5,228.97 crore in the previous year, a growth of 62%. Last fiscal witnessed a highly volatile international market up to October 2008. Prices of DAP/MAP, sulphate, phosphoric acid sky rocketed. There were disruptions. Exchange rate of dollar against rupee hardened affecting the input costs. When prices of DAP/MAP started softening since November, there was no corresponding reduction in the price of rock phosphate. This affected profitability in the last quarter. However, the company could achieve the highest turnover and substantial rise in the operating profit due to sustained total quality management, effective cost control, cost reduction and efficiency improvement measures.

Turnover of the company rose by Rs 3,227 crore, but why has PAT has increased by only Rs 52 crore

The sales have gone up substantially mainly due to increase in the prices of raw materials such as naphtha, rock phosphate, DAP, MOP. As you are aware the margins on fertilisers are less hence the profit has not increased in line with the turnover.

Can you tell us the reasons for a major shift in the loan portfolio

In order to avail cheap credit, the company borrowed short-term loans at very competitive interest rates as against costlier cash credit borrowings.

In 2007-08, due to exchange variation there was a gain of Rs 9 crore while loss for the company stood at Rs 188 crore in 2008-09. What were reasons behind this

This was due to volatility in foreign exchange market where dollar prices were at an all-time high against rupee. The loss booked in 2008-09 is mainly notional on account of translation of foreign exchange liabilities at the closing rate as on March 31. Such loss has also been offset to a large extent in the current year.

What is the outlook of the company for 2009-10 fiscal

The company has got over the constraint of gas in the feed stock supply due to availability of K-G D6 gas from Reliance Industries from May. Trombay urea, which was closed for more than five years, has started normal production. Closure of such plants for such a long time makes it junk. However, in spite of initial problem now the plant has stabilised its production and it is giving more than 100% production. Trombay and Thal units together are now producing a total of 6 million metric standard cubic meter of gas per day (mmscmd). However, getting K-G D6 gas has a flip side too. Now the cost of production of chemicals has gone up whereas chemical market is down. Due to non-availability of naphtha, there is a problem in disposing surplus ammonia at Thal plant. All these factors are affecting the bottomline.

Can you elaborate on RCF's growth plans

Many projects are under implementation and several others are being conceived and fructify in future. The Rs 100-crore Rapid Wall project, though delayed for some technical reasons, will be commissioned soon. Besides, the project for revamping of a methanol plant is in progress. It will be commissioned by end of September. Substantial progress has been made towards carbon credits from nitric acid plants for clean development mechanism which is under first stage clearance of United Nations Framework Convention on Climate Change (UNFCCC). Moreover, RCF Thal expansion plan with an investment of Rs 4,200 crore is underway.

What are RCFs disinvestment plans

It will certainly happen. We are yet to receive the government response in this regard as thus it will be difficult to comment on the quantum of the stake to be divested or the time-frame for it.