The Hindu Business Line : GAIL gas cut to hit Regency Ceramics

GAIL (India) Ltd's decision to substantially reduce natural gas supplies is expected to adversely affect the performance of the Rs 183-crore ceramic tiles major Regency Ceramics Ltd (RCL).

The decision, said to have been forced by shortage of gas reserves in the Krishna Godavari (KG) basin and increased utilisation of gas allocations by various industrial houses, could result in RCL incurring significant increase in cost of production and suffering pressure on profit margins.

Regency Ceramics, which has completed its expansion project of one lakh tonnes per annum and commenced operations recently, has been obtaining 1.45-lakh cubic metres of natural gas per day from GAIL.

Under the agreement with GAIL, the company has been drawing the natural gas required for full production in the usual course of business.

"GAIL has now informed us that it is not in a position to supply the natural gas to the extent of 1.45 lakh cubic metres since the other users of natural gas from the KG basin having allocation on firm basis have started drawing the gas to their full allotment. We will now lose nearly one-third of natural gas supplies from GAIL," the RCL Chairman and Managing Director, Dr G.N. Naidu, told Business Line.

According to him, following these developments that are beyond its control, the company is now making alternate fuel arrangement by installing certain additional facilities. It expects to incur a cost of around Rs 1 crore for changing the systems towards either light diesel oil or furnace oil, which would take couple of months.

At present, the company enjoys a comfortable net profit margin of around 10 per cent. For the fiscal 2003-04, the company posted a net profit of 18.43 crore on a turnover of Rs 183.39 crore. The increased cost of production by around 30 per cent (around Rs 1 crore per month) would result in the profit margins coming down significantly to around 7 per cent, Dr Naidu said.

The company is making all-out efforts to get adequate supply of natural gas on firm basis to meet its full requirement. It plans to begin negotiations with Reliance and ONGC in this direction. Even if successful, it expects to get the gas supplies only from the next fiscal.

"Until then there will be pressure on the capacity utilisation of the plant with the use of alternate fuel, resulting in pressure on profit margin. The turnover will also get affected during the first quarter of this fiscal. However, we expect to increase the turnover levels from the second quarter onwards," Dr Naidu said.

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