Rising crude prices to hit profitability: PPL

Paradeep Phosphates Limited (PPL), a leading manufacturer of DAP fertilizer in the country operating under the umbrella of Zuari Maroc Phosphates, a joint venture between KK Birla owned Zuari Chambal group and OCP of Morocco, expects its profit margins to dip in the coming financial year due to rising crude prices.

The company imports most of its raw material required for fertilizer production. It fears the rising crude prices will adversely impact the transportation of these materials and push up their landing cost.

“I am not sure about profit margins for the current financial year. But the higher crude oil prices will definitely have an impact on profit margins in the next financial year,” said Ranjan Basu, vice president (operation) of the company.

Since the crude prices flared up in the last quarter of the current financial year, there may not be any impact on the bottom line this fiscal, he explained.

The fertilizer unit depends on many Arabic countries such as Iran, Tunisia, Morocco, Jordan and Saudi Arabia for its raw materials such as rock phosphates and sulphur and other necessary items. The recent political unrest in Arab nations is also expected to affect supplies.

“The recent unrest in those countries has affected supplies. Hence, we are working with limited inventory and trying to source raw materials from other countries,” said Basu.

The company clocked Rs 151.55 crore profit in 2009-10. Industry sources say profit margins may dip in the current as well as next financial year because of supply problems and rising input costs.

Last year, the Di-Ammonium Phosphate fertilizer making unit had announced Rs 500 crore investment plan to expand its production facility, which included establishment of another sulphuric acid plant along with a gypsum pond by end of 2013.

But none of these projects has taken off. The company officials said they have got necessary clearances from the government, but are yet to decide on the selection of contractors.

“We have got environment clearances for the expansion projects. We are now stuck with paper works and not yet decided whom to give the contract. But we are hopeful that the projects will be completed in time,” said Basu.

Delay in expansion plans usually increases cost burden. But the PPL officials said, they will manage to keep the cost within projected Rs 500 crores.To encourage higher fertilizer production in the country, the Union Government in the recent budget proposed to include capital investment in the fertilizer sector as an infrastructure sub-sector. This will allow the fertilizer plants to get cheaper loans and other tax benefits.