Tata Chemicals Ltd’s inorganic chemicals business performed well in the June quarter (Q1) and, to some extent, offset the weak performance of its fertilizer business. The same trend was seen in the March quarter as well. In the June quarter, the other agri inputs business, too, delivered a strong performance.
On a consolidated basis, inorganic chemicals revenue increased by 17% over the same period last year and accounted for around half of the gross revenue. On the other hand, fertilizer business accounted for 35% of the total revenue, and increased at a much slower pace of 9.5%. Fertilizer business earnings before interest and tax fell by 47% and that of inorganic chemicals increased by 28%.
Two reasons affected the profitability of the fertilizer business. One, the company did not recognize subsidy income to the tune of Rs 31 crore. Tata Chemicals maintains that if it had recognized the subsidy income as per the prevalent NBS (nutrient-based subsidy) policy, then revenue and net profit after minority interest would have been higher by Rs 31 crore and Rs 23 crore, respectively.
Secondly, last year June quarter’s other operating income included an estimated insurance claim for the loss of profit worth Rs 18 crore relating to the company’s fertilizer plant at Babrala. That item wasn’t there this time.
Overall consolidated revenue, thus, increased 17% year-on-year to Rs 2,954 crore. Operating profit margins though slipped by about 270 basis points to 17.8%, as total costs grew at a faster pace, led mainly by higher power and fuel expenses, and other expenditure. One basis point is one-hundredth of a percentage point.
The Tata Chemicals stock has outperformed the BSE-100 Index since the beginning of this fiscal year. But analysts say that upsides in the stock could be limited in the days to come, simply because higher costs may limit any meaningful improvement in margins.
On the brighter side, the inorganic chemicals business is expected to perform comparatively better, which should cushion the overall performance.
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