Coromandel Intl sees raw material pressures in Q3FY12

The cabinet recently approved revision in nutrient-based subsidy (NBS) on fertilizers with effect from April 1, 2011. This buoyed fertilizer companies up with good earnings in the first quarter of the current fiscal.

Coromandel International posted a very strong set of numbers and the stock reacted positively, moving up around 2%. Kapil Mehan, managing director of the company joins CNBC-TV18 to discuss the financials.
Sizable contribution from the non-fertilizer business such as agro-chemical and retail also played in well for the company in the quarter, apart from the subsidy compensation from the government, he says.
Going ahead, disturbances in North Africa that upset the supply chain for raw materials could impact availability of the base material in the third quarter, the MD says. Below is the verbatim transcript. Also watch the accompanying video Q: Your numbers are good, is it largely because prices have been more supportive in the current quarter and subsidy compensation too?
A: The fundamentals of our business have been very strong, our internal efficiencies on consumption, on raw material procurement, on fixed costs, all of that has been very good. Also, our non-subsidy business which is essentially a non-fertilizer business, whether its agro chemical, retail or specialty nutrients and composed, those businesses have done very well in this quarter. That is the reason that our topline has grown, and because of efficiencies, our bottom line has grown at a higher rate than the topline. Q: You had quite a bit of inventory gain as well that you booked this quarter is it not?
A: Yes we had carrying inventories but the Government of India came out with office memorandum around second week of July where they had indicated that they will like to mop up the gains on that. We have made adequate provisions on the finishes good inventories that we were carrying in reference to that circular. While there are issues with that circular which we are deliberating internally as well as we have obtained legal opinion on the same, we are advised that there are serious issues with that office memorandum. Nevertheless, we have made adequate provision in terms of our finished goods that we were carrying. Also read: Fertilizer subsidy revised: Which stocks will yield gains? Q: So given the revenue growth you had reported in the first quarter what is that you expect to see in the full year and would you at this point include any potential input from Sabero Organics or are you working with standalone volume guidance?
A: At this point of time, we are at a standalone basis because the process for acquisition of Sabero is well underway, we are in the process of completing the open offer process. As far as fundamentals of our business are concerned, in our markets, now monsoons have more or less covered the entire market the sowings have been good, the farmers are buying inputs. Our retail expansion programme is on track and all other composed business sourcing etc is on track.
Given that the demand fundamentals are good, we should see continued good demand and help us post robust numbers. But there could be constraints on raw material availability. North Africa disturbances have really upset the supply chains of raw material from those countries and while we have raw material tie ups for the next 3-4 months, we could see some concerns on that developing towards third quarter of this year. Q: You were speaking about efficiencies earlier and you have got your operating margins up to 14% in the quarter, any room for improvement do you think during the course of the year?
A: We don