Excessive rainfalls hampered Q2FY12 operations: Usha Martin

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Excessive rainfalls hampered Q2FY12 operations: Usha Martin

AK Somani, the chief financial officer of Usha Martin Ltd that operations were hurt due to excessive rainfall this year.

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Lower captive raw material production and loss on foreign borrowings hit speciality steel and wire rope major Usha Martin Ltd's second quarter results. In an exclusive interview to CNBC-TV18, AK Somani, the chief financial officer of the company said that operations were hurt due to excessive rainfall this year.

The company reported a 7.3% increase in turnover to Rs 686.31 crore in the quarter in review.

However, the company reported net loss of Rs 71.8 crore due to the sharp depreciation in the rupee. "Rupee depreciation hurt our profit after tax (PAT) and lead to a nominal loss of Rs 120 crore during the quarter," said Somani. However, this impact should get reversed in subsequent quarters, he added.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Could you line out for us what exactly impacted production and raw material availability this quarter and whether that situation will get elevated going into the second half?

A: Excessive monsoon and rainfall caused a problem in our mines due to which captive supply could not be maintained. Availability of coal as well as iron ore has also forced us to depend more upon the bought out materials and that impacted the production as well as cost of production.

Another thing which has happened is that because of the rising inflation and interest cost, there has been an impact on growth in the auto sector which has also affected the realizations in the market. Though on net-net basis not much of the realization reduction is there, we could not pass on the full cost increases due to the bearish market. If you see over period to period, say H1 of last year and H1 of this year, there has been a significant impact in the cost increase by roughly around 30%, but not that the full impact could be passed on.

Another factor which set us back was the purchases of coking coal at USD 320-330. Currently, the prices are on like to like basis at about USD 270, so we have to consume the higher the cost inventory and the market does not give the price based upon our cost it is what is there in the market. So these were the primary reasons.

Apart from that, the bottomline was affected on account of forex liabilities valuations. You are aware that in the month of September there has been a spurt in the dollar vis-à-vis rupee and as a result of that we had to make a provision of about Rs 120 crore. However, we feel the impact should get revised in subsequent quarters.

Q: Your interest costs have also gone up and have been steadily climbing. What are you doing to bring down the level of debt that you have on your borrowing cost?

A: We have a mix of forex loans of about 35%-37%, balance being the rupee, on the rate basis of about 8.9%. But because the interest costs have been rising, the impact is increasing. On the overall debt size of about Rs 2,000 crore, a yearly increase of about 2% we make an impact of about Rs 40-50 crore.

Going forward, I don't think there is going to be an immediate solution to this. We think that stabilization in the rates of interest going forward should bring an ease on the interest cost, but as of now I can't say that there is going to be an immediate solution to that.