RCF’s profits get a fillip from energy efficiency measures
Emphasis on modernization and energy efficiency measures help expand operating profit margin to 6.3%
Rashtriya Chemicals and Fertilizers Ltd’s (RCF’s) efforts to de-bottleneck the Thal unit in Maharashtra have helped it report an improved operational performance for the December quarter. Tracking the slump in demand for fertilizers, sales at the state-owned company fell 3% on a year-on-year scale. But operating profit during the quarter jumped 75%, thanks to energy-efficiency measures at the Thal unit. According to HDFC Securities Ltd, energy consumption for urea at Thal fell to the lowest level of 6.06 Giga-calories per tonne in the third quarter. Lower energy costs more than doubled the operating profit at the Thal unit.
While operating profit from the Trombay unit more than halved due to poor sales, the company has drastically scaled down the trading business due to low demand for agriculture inputs and constraints at ports. Trading business registered a 43% drop in revenue during the last quarter. Even though revenue fell sharply, the segment turned in an operating profit of ₹ 18.9 crore during the last quarter. In the same quarter in the previous fiscal year, the trading business reported a loss of ₹ 29 crore because of a mark-to-market hit.
Emphasis on modernization and energy-efficiency measures helped the company expand its operating profit margin by 2.8 percentage points to 6.3%. But low other income and a sharp rise in interest costs slowed net profit growth to 37%. Nevertheless, the better-than-expected profit had little impact on the stock price. The stock fell 1.4% to ₹ 52.80 on Tuesday. The broader market S&P CNX 500 index closed the day with a loss of 0.54%.
The stock has been under-performing the broader market for some time now. Apart from the overall slump in demand for agriculture inputs, investors are concerned about the lack of clarity on fund-raising plans. The company is setting up new urea plants in Thal and Talcher (in Orissa). The 1.2 million tonne per annum urea plant in Thal alone is estimated to cost the company around ₹ 4,200 crore.
According to Emkay Global Financial Services Ltd, the company has a total capital expenditure plan of ₹ 18,700 crore lined up for over the next five years. The new urea policy offers higher regulated returns. But with the company’s debt-equity ratio already crossing 1.6 times by the end of the last fiscal year, RCF needs to raise fresh equity to tap growth opportunities
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