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Higher raw material costs hit Coromandel

Higher raw material costs hit Coromandel
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First Published: Wed, Jan 12 2011. 10 30 PM IST
Updated: Wed, Jan 12 2011. 10 30 PM IST
Coromandel International Ltd’s stock fell by 2.7% on Wednesday to Rs.280 apiece before the firm announced its December quarter results. On the same day, the Bombay Stock Exchange’s Sensex index was up by 1.7%.
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Perhaps investors were expecting numbers to be weak. But Coromandel’s December quarter results, which were announced after market hours, are more or less in line with Street estimates.
Total consolidated operating revenue increased by 16% over the same period last year to Rs2,057 crore. Unfortunately, higher raw material costs spoiled the party at the operating and net profit level.
Operating profit margin fell by about 130 basis points to 11.4%, from 12.7% in the December quarter. Operating profit thus grew at a much slower pace of 4% to Rs235 crore. One basis point is one-hundredth of a percentage point.
Coromandel’s stock has done well on the bourses and outperformed the BSE-500 index by as much as 63% since the beginning of the fiscal.
The introduction of the nutrient-based subsidy (NBS) policy from April has improved sentiments for the sector in general.
But for FY12, the Indian government has reduced subsidy rates under the NBS scheme for complex fertilizers by around 20%. So the profitability of complex fertilizer firms such as Coromandel would depend a lot on how they manage their raw material costs and the price increases that can be passed on to the?farmers in FY12.
Given that farmers would be sensitive to higher prices, there is a limit to which firms can hike their prices. Accordingly, investors can expect margins to face some pressure.
Graphic by Ahmed Raza Khan/Mint
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First Published: Wed, Jan 12 2011. 10 30 PM IST