DCM Shriram Bets On Lower Input Costs To Boost Profits From Chloro-Vinyl Business

DCM Shriram's Executive Director and Group Chief Financial Officer Amit Agarwal expects the company's profitability in the chloro-vinyl business to further improve following a strong second quarter in the current financial year.

For the September quarter, DCM Shriram Ltd. has reported a 95% year-on-year rise in net profit to Rs 63 crore against Rs 32 crore. Revenue from operations increased by 10.8% to Rs 3,130 crore versus Rs 2,825 crore YoY.

The chloro-vinyl segment in particular showed massive growth. Profit before interest and taxes of this segment shot up by 138% to Rs 50 crore in Q2 against Rs 21 crore in the same period last year. Revenue jumped 12% YoY to Rs 777 crore from Rs 694 crore.

Commenting on the segmental result, Agarwal revealed two major reasons behind the strong momentum in the company’s chloro-vinyl business.

“There has been significant improvement on the cost side (in the chloro-vinyl business), driven by the lower energy cost and input cost, as well as the efficiency level. This (energy efficiency improvement) happened because we commissioned a 120-MW more efficient coal-based power plant in Q1,” he told NDTV Profit.

Agarwal expects the lower input cost in the chloro-vinyl business to be sustained throughout the year. “Therefore the profitability margins, my sense is, will either improve or remain at the same level for the rest of the year.”

However, DCM Shriram’s revenue from the sugar and ethanol segment was muted, while loss widened to Rs 14 crore from Rs 11 crore.

The CFO attributed this to Q2 being a lean season in general, as well as the higher cost of production. “Most of the production happens in Q3, Q4 and partly in Q1. So, Q2 always has the lowest profitability.”

Agarwal added, “The other thing that has happened is that the cost of production of sugar last season was higher by about Rs 400 and the selling price has not kept pace with that. So I think the numbers are a little softer for sugar vis-a-vis last year.”

Shares of DCM Shriram Ltd. closed 0.41% lower at Rs 1,048 apiece on the NSE on Tuesday. In comparison, the benchmark Nifty 50 closed 0.91% higher at 24,213.30 on the day.