Demonetisation: RCF expects normalcy by month-end; gas price income down

Suresh Worrior, Director Finance, Rashtriya Chemicals and Fertilisers is not overly worried about demonetisation impacting them and expects things to be normal by the end of the month.

Talking on company's weak performance in second quarter, Worrior said EBITDA was down because of a drop in import parity price of Urea and topline was impacted due to discontinuation of one product.

The total income for the company in the quarter ended September was down 26.3 percent at Rs 1,772.1 crore versus Rs 2,403.3 crore in the same quarter earlier fiscal. Meanwhile, income related to gas price is down too, he said.

EBITDA in Q2 was down 13.1 percent at 100.2 crore versus Rs 115.3 crore year on year (YoY). EBITDA margins stood at 5.7 percent versus 4.8 percent. Net profit was down 6.5 percent at Rs 43.4 crore versus Rs 46.4 crore YoY. Below is the verbatim transcript of Suresh Worrior's interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Latha: Before I come to your numbers, I just wanted to ask you how rural India and fertiliser offtake has reacted in the last two weeks to the demonetisation? A: There has been some impact. Basically the impact is in a form of handling of rakes which are going. The fertiliser dispatches are taking place through rakes and trucks. Rakes when they are handled -- when the material is received, these contractors have to pay the workers there in cash. Now, we understand that there has been some problems but now it is getting sorted out. Sonia: Do you see this as just a very near-term impact or do you think that this is something that could impact your earnings as well in the slightly medium-term? A: It will have a very slight impact because this is supposed to be the peak period for the rabi dispatches so there will be some impact but not significant. Latha: We all know that the rural economy is more a cash economy. What are your stockists and dealers telling you, is there offtake by the farmers, is a rabi sowing and the use of fertilisers likely to be impacted especially if the cash withdrawal limits last all the way till December 30th? A: No, I don’t think it will last till December 30th. Probably by the end of this month, the thing should be normal. Latha: But now offtake is there from the farmers? A: It is there but it is slightly reduced. Sonia: What about your own earnings because this time around your income was down more than 25 percent. What was the reason for that and what can we expect in the second half of the year? A: Basically, incomes are related to the gas prices because the subsidy on urea is linked to the import price, so there has been a substantial drop in the gas prices. Last year we used to pay gas at the rate of USD 10 per mmbtu, now that has been reduced to 7.6. So when the gas prices reduced, automatically the subsidy also reduces, so turnover goes down. That is one. Second is that, we have discontinued one product so that has also impacted the topline. Latha: If the cost of gas goes down and therefore your income goes down, it should not logically affect EBITDA and certainly not net? A: The EBITDA is affected mainly because of two reasons. One is there is a tremendous drop in the import parity prices of urea. The compensation above 100 percent is linked to the import parity prices. Import parity prices which last year were around USD 268 have now gone down to USD 190. So this has impacted -- major part of the drop in profit is because of the drop in the import parity prices of urea but luckily now the import parity prices have gone up. So it is a good thing for us but not good for the government.