Positive trend on fertiliser to continue in FY18: RCF

Rashtriya Chemicals and Fertilisers (RCF) posted a steady set of earnings in Q4 with an improvement in the core fertiliser business but the chemicals segment disappointed a bit.

In an interview to CNBC-TV18, CMT Britto, CMD of RCF spoke about the results and his outlook for the company.

Below is the verbatim transcript of the interview.

Sonia: If you can just start off by telling is whether this trend that you are seeing as far as the improvement in the core fertiliser business is concerned, is that something that can continue even in the first half of the new fiscal year?

A: Yes I think and we hope that this trend will continue for the next year also because one is the certain steps taken by the company is giving us the required amount of energy savings thereby improving our operating efficiency. At the same time, the prediction by India Meteorological Department (IMD) saying that the monsoons are going to be normal will have significant impact on our key market because our economy is dependent on monsoon and we hope that we will have good sales coming forward.

Latha: Your trend margins have fallen a bit; you would think that can turn?

A: Yes that will definitely turn because operating efficiency will continue to grow and certain steps have been taken and the results will be coming at the end of this, rather in the third quarter of this year and that will give us some benefits.

Latha: It grows to what, 6 percent, 7 percent, what is your expectation?

A: Maybe about 7 percent.

Latha: I just wanted to ask you also your breakup of revenue, how much comes from urea and how much comes from the complex itrogen, phosphorus and potassium (NPK) fertilisers?

A: Complex is around 15 percent. Basically it is urea, and about Rs 900 crore is coming from IPD, i.e. industrial product out of Rs 7,200 crore.

Sonia: Can you give us an outlook for the chemicals business as well because over there the revenues have fallen significantly. Why is that and what would the view be for the next few quarters?

A: The problem right now for industrial chemical is our inputs are natural gas for all these chemicals and we need to compete for these products, import from Iran and Arabian Gulf where the gas price is about 1/4th the price which is prevalent in India. So, the margins are really hard-pressed for us. So, they will be under pressure even going forward.

Latha: Wanted to ask you about DBT, how much of this direct benefit transfer has been rolled out at all and what have you been given to understand by the end of the year, basically how will it impact your working capital as well as your profit?

A: This DBT maybe a right step in the direction. In fact it is implemented in the whole country. Yes, it is a major step and so it will have some teething problem initially like connectivity problems, the acceptance of these machines by the retailers, and then data-entry in those posh machines. However, definitely this will be a good sign but initially we will have problems in the form of rather delayed subsidy payments because the sales are restricted only for few months of the year. So, the result is that, yes, maybe four or five months where the season is there that time the sales will be there and fertilisers will be sold and only after the sale, realisation takes place that we will start getting subsidy payment. So, the subsidy payments will be delayed slightly initially.

Latha: So you will have a working capital issue and therefore profit and loss (P&L) can actually take a bit of a hit?

A: Yes, that is true.

Latha: You can't quantify it now?

A: It is very difficult to quantify it. We are waiting and watching.