Currency fluctuations, insufficient rainfall impacted Q3: Zuari

Poor crop conditions, insufficient monsoon and currency headwinds impacted growth in the third quarter of FY16, says Kapil Mehan, MD & Group CEO of Zuari Agro Chemicals. Delay in capacity expansion of the Goa plant also impacted production in the Q3, Mehan adds. The company’s standalone revenue fell 22 percent to Rs 1,105 crore and operational efficiency (EBITDA) reduced 62 percent to Rs 27.7 crore in the quarter ended December 31.However, Mehan says production improved by nearly 14 percent in the quarter gone-by. Due to poor demand and an increase in imports, there has been oversupply in the market, he adds.Below is the verbatim transcript of Kapil Mehan's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: What went wrong this quarter and how much has demand weakened?A: Let me start by saying that yes, the numbers you are seeing for the quarter are not very good but we must always remember that we are dealing with agriculture and there could be shifts on quarter-on-quarter (Q-o-Q) basis, month-to-month basis and we need to look at atleast a 12 months kind of a scenario rather than looking at a quarterly scenario.Having said that, this quarter has been primarily a challenging one in terms of poor crop conditions, rainfall has been delayed and there have been poor sowings, low commodity prices, the rupee/dollar exchange parity has been adversely impacting the sector. So all these factors have led to the performance that we are seeing. Internally also we had a bit of a challenge because our Goa plant, which went in for capacity expansion got delayed by about one month so we have lost some production there. As a group, we continue to do well. For the period, our production is up by about 14 percent at group level as well as our sales is up by about 10 percent. So overall, it is an improvement as compared to most of the other players in the sector because sector has been under pressure from the month of July onwards because of poor demand conditions, which have existed in the market.Latha: When the government announces the core sector numbers, it reported double digit growth in fertiliser output from the month of August. Hasn’t output improved? That is what the macro numbers point out?A: Our output has also improved. That is what I shared just now that our production is up by about 14 percent, by about 300,000 tonnes, our own production has gone up in the last 12 months and that is something which is a positive dues.The margin has been under pressure because we buy raw materials on a quarterly or six-monthly basis. The international market has also been declining, rupee has been depreciating. So all that leads to our costs getting squeezed, our margin gets squeezed when that kind of a thing happens and we have not been able to pass on these increases immediately to the farmers because of market conditions not been very conducive. Demand conditions have not been great, our aims have been delayed. So those are the factors which impact overall demand but production is up, import also has been up as far as phosphates are concerned and that has led to a little bit of an oversupply of the market also. So that has put pressure on our working capital cost. Even though our overall financing costs are little bit lower than what they were last year but they are still a cause of worry.