Home / Market / Mark-to-market /  Weak chemicals business weighs on Gujarat State Fertilizers earnings

The weak chemicals business continues to weigh on Gujarat State Fertilizers and Chemicals Ltd (GSFC). The maker of agriculture inputs and industrial products reported a tepid 4.5% growth in sales for the September quarter.

Two domestic broking firms had estimated sales to rise in the range of 12-19% from the year-ago period. The miss is driven by the chemicals division. As demand remained weak, sales continued to fall, leading to a significant drop in the segment’s operating profit.

The fertilizer business did well. Sales are up 13%. With the government increasing the fixed cost subsidy for urea, operating profit of the segment more than doubled from the year ago period, aided by a favourable base. A year ago, the company as well as the industry had suffered from high inventories of complex fertilizers. As excess stock has been cleared, sales are picking up again.

Also, companies have lowered promotional offers and discounts, which is giving a fillip to the profitability of the complex fertilizer business, analysts say. The measures helped GSFC expand Ebitda margin by 27 basis points to 11%. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability. One basis point is one-hundredth of a percentage point.

Operating profit increased 7%. But net profit grew at a faster pace of 22%. The upside mostly came from tight working capital management. Trade receivables are down by about 21% from their levels in March. This helped the company lower finance costs substantially.

The performance, nevertheless, may disappoint analysts. A month back, the company had in an analyst meet pointed to an improving business environment for chemicals. It said that margins of the key industrial product (caprolactam) showed signs of improvement and the company expected demand to improve.

This raised expectations, so much so that some analysts predicted the company’s chemical business would show improvement from the September quarter, triggering a rally in the stock. From 68 at the beginning of September, the stock gained nearly 82% to a record 123.50. For investors, it is critical that signs of improvement in the chemicals business emerge early.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Recommended For You

Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout