Financial Daily from THE HINDU group of publications
Thursday, Apr 29, 2004
Financial Daily from THE HINDU group of publications Thursday, Apr 29, 2004 |
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Corporate
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Performance Columns - Microscope Indo Gulf Fertilisers — A long-term bet Aarati Krishnan
BOTH the sales and profit performance of Indo Gulf Fertilisers for 2003-04 are distorted by the receipts of subsidy arrears pertaining to earlier years. Shorn of these receipts, Indo Gulf `s financial performance for the year is modest; but reflects the company's resilience in a difficult year. Excluding the subsidy receipts, the company has recorded a seven-per cent increase in sales to Rs 557.5 crore in 2003-04, and a 12.5-per cent decline in profits before tax to Rs 81.9 crore. After the good monsoon of 2003, Indian demand for urea increased by 4.3 per cent over the previous year. But sales volumes for Indo Gulf rose only by 1.5 per cent to 8.79 lakh tonnes. While demand in Indo Gulf's key target markets was robust, sales volume growth appears to have been impacted by a late start to the kharif season sales and inadequate availability of gas in the tail-end of the rabi season, which interrupted production. Overall sales realisations were also dented by Rs 37 crore, as the players moved on to the next stage of the Group Pricing Regime for urea. Seen in light of these setbacks, Indo Gulf's performance for 2003-04 is reasonable. Brand-building efforts, focussed distribution and differentiated products such as neem-coated urea, have helped bolster the company's realisations and thus, net sales by seven per cent. Cost-cutting efforts have helped generate savings in energy and distribution costs. These initiatives have helped Indo Gulf keep the decline in its profits before tax to 12.5 per cent, despite lower subsidies per tonne of urea sold. In the near term, the pressures on Indo Gulf's sales and profits from a further fine-tuning of subsidies may continue. Though a good monsoon has recently been forecast for 2004, the experience of 2003-04 shows that this may not immediately translate into a surge in volumes for the individual players in this industry. However, long-term prospects for the company appear bright. Once the transition to a free market regime is complete, Indo Gulf Fertilisers appears to be in a good position to compete at import parity prices, as one of the lowest cost producers of urea.
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