Chambal fertilisers: Other income, lower fuel cost, boost margins

Chambal Fertilisers, one of India���s largest private sector fertiliser companies, reported a healthy 35.8% growth in profits for the September 2009 quarter despite a huge 44% fall in its net sales, as the company cut down on its trading business. Despite the profit growth, the scrip lost 2.7% on the Bombay Stock Exchange (BSE) to close at Rs 54.75. The current price values the company at 8.2 times its profit for the past 12 months.

A strong 900-basis point jump in operating margin to 17.9% drove Chambal���s profit growth in the September 2009 quarter. Apart from the reduction in trading activity ��� which was making losses last year ��� a sharp 37% fall in fuel costs and a 16% dip in other expenditure also boosted the operating margins. Other income for the quarter was 34% higher on y-o-y basis to Rs 14.3 crore. The company incurred a cost of Rs 10.2 crore on converting floating rate loans to fixed rates for its shipping division, which resulted in a 52% y-o-y reduction in its interest cost to Rs 19.8 crore. The resultant pre-tax profit was 53% higher against the year ago period at Rs 100.4 crore.

However, an increase in the effective rate of tax restricted the net profit growth at 35.8% to Rs 64.7 crore.
The company���s shipping business turned out to be a dampener during the quarter while its fertiliser and textile businesses prospered. The profits from the shipping business dipped to a meagre Rs 0.1 crore from Rs 26.2 crore in the corresponding quarter of last year.

However, the 15% profit growth in the fertiliser business and curtailed losses in trading helped the company���s profit growth. The trading activity was reduced to just one-sixth of year ago period following a steep reduction in the volume and prices of di-ammonium phosphate, while last year���s trading losses turned into profits. The textiles division clocked a tiny profit against a small loss in the September 2008 quarter.

The company has completed partial de-bottlenecking of both its fertiliser plants situated at Gadepan in Rajasthan in March and April 2009. The partial debottlenecking will help in saving energy and lead to a marginal increase in urea capacity. Going forward, the company is likley to benefit from expanded capacities, better capacity utilisation due to a steady flow of gas and a revival of its shipping business.