Gujarat State Fertilizers & Chemicals To Sustain Margins At 10% In Second Half, Says CFO

Gujarat State Fertilizers & Chemicals Ltd. expects rising raw material costs to eat into its margins in the second half of the ongoing fiscal.

As a result, the government of Gujarat-owned undertaking does not expect its margins to exceed the 10% range in the third and fourth quarters, said Senior Vice President (Finance) and Chief Financial Officer SK Bajpai.

In the quarter ended September, GSFC’s margins witnessed a good uptick at 10.8% versus 7.6% in Q2 of the previous financial year.

Bajpai told NDTV Profit that this upward trend in margins is expected to stabilise but not grow further in Q3 and Q4.

“I foresee that the margin will remain (in) the same proportion because the raw material prices are again starting to climb. For example, ammonia, natural gas, and phosphoric acid prices are on an increasing trend. So I don't foresee any further increase in the margins,” he said.

The other contributing factor, pointed out Bajpai, was that the fertiliser season ends in Q3 and Q4. “As such, quarter 4 and quarter 3 are the end of the fertiliser industry season. So the margin will remain the same as in Q2 or the first half of the current financial year.”

GSFC’s revenues, however, came down 15.5% to Rs 2,635.17 crore against Rs 3,118.72 crore in the same period last year. Net profit fell by 3% to Rs 298.23 crore compared to Rs 308.91 crore in Q2 last year.

Bajpai attributed the company's turnover as well as volumes in Q2 dropping to multiple factors. “This is mainly due to the reduction in subsidy rates because the revenue is a combination of the retail prices and the subsidy received from the government,” he said.

The top executive noted that the top line will remain at the Q2 levels amid the expectation of a similar subsidy rate from the government in the upcoming quarters. However, the CFO noted that the upcoming projects may boost GSFC's bottom line.

The state-owned company is currently working to onboard three facilities—a 15 MW solar power project at Charanka, the Urea-II revamping project, and the Sulphuric Acid (SA-V) project.

“All these projects are slated to be completed by the year's end, and we will be getting the production… As such, this is the replacement of our earlier plants and it is a capital consumption. So there will not be much change in the topline, but (will) certainly improve the bottom line,” he said.

Shares of Gujarat State Fertilizers and Chemicals Ltd. were up 0.49% at Rs 196.55 apiece on the NSE against the benchmark Nifty 50's decline of 1.36% on Wednesday.