Will be profitable in Q3 on benzene price fall: GSFC

The massive fall seen in the Indian rupee put pressure on the margins, says Atanu Chakraborty, managing director, Gujarat State Fertilizers & Chemicals.

Speaking to CNBC-TV18 on the fertilizer company’s Q2 results, Chakraborty says while the company had hedged against the fall, it did come at a heavy price. Apart from that, the subsidy reduction by the government of India and reduction in prices led to margin compression, adds Chakraborty.
The slowdown in the EBIT performance, he adds is due to high benzene prices, that were as high as USD 1320 per tonne. But the fall in the same, to USD 80 now, will make Q3 profitable adds Chakraborty. Below is the edited transcript of Chakraborty’s interview to CNBC-TV18. Q: Was the problem really complex fertilizers, why is it that the things were down in what we thought was a bumper kharif season?
A: If one sees it, the entire market was clogged. The complex market especially had huge unsold inventory and also the northern market i.e. Haryana-Punjab and Uttar Pradesh (UP) had now decided to be slightly slow on complex fertiliser during kharif season.
The government of India had reduced subsidies by a very substantial amount varying from Rs 1,200 to 2,000 on the upside and there was no place for price increase. We reduced prices across the board except for slight increases in ammonia phosphate sulphate.
Those were certainly there to compress the margin and if one sees during this quarter, the rupee also went through a typical rollercoaster. Though we have a very sophisticated system to protect us against such shocks, it has its own cost.
Hence, all this put together and on ammonia, the sales are slightly less because of market conditions. This led to a result which was not in the same league as for the same corresponding period last year. Q: What is the exact inventory that is currently in the system for GSFC and will the volumes decline in the second half of the year as well in Q3?
A: Our volumes have declined very substantially. We have almost liquidated our entire inventories in western, southern and central part of the country while the entire market shows almost pending lifting amount of roughly 25 lakh tonne in Di Ammonium Phosphate (DAP), ours is barely a lakh tonne which is now lifting because of delayed lifting in rabi on Haryana, Punjab, UP but it is lifting off.
On that count, we are over the bridge. However, we are concerned about huge imports of DAP into the country, almost 2.5 million tonne, which would continue to keep pressure for all producers for time to come. Though with our distribution networks we are better placed, the market would see a lot of competition on the front. Q: What is the update on gas supply?
A: We are getting gas supply to our requirement as far as quantities are concerned. However, across the board perhaps if the result of Dr Rangarajan Committee report or maybe some supply problem, the APM and non-APM gas we are not getting to an extent possible. We have regasified liquefied natural gas (R-LNG) through which we are able to make up for industrial products but that also compresses margins to some extent. Q: On the industrial products business you have seen a huge slide in your EBIT performance, down more than 1,300 bps, will that slowdown continue as well?
A: The slowdown has been on account of high Benzene prices wherein caprolactam prices climbed back to what we thought should be the range. However, the Benzene went up as high as USD 1320 per tonne. We are seeing easing in Benzene prices, they have now come down as much as USD 80 since then. Therefore the next quarter, I do see improvement in Caprolactam Benzene spread which should act substantial to the profitability during this quarter.