Guar price fall puts Vikas in a fix

Company assures farmers Rs 50 a kg against Rs 42 a kg traded on NCDEX, further fall possible on higher output

A sustained fall in the price of guar seed and its derivative, guar gum, has put the BSE-listed Vikas WSP in a tight spot, with its share price down 73 per cent.

There has been a surge in sowing and, therefore, in expected output; prices have, accordingly, slid. In April, at the beginning of the sowing season, Vikas had distributed around 100,000 bags (a quintal each) of guar seed to farmers and invited them to sow this cattlefeed, for which the company guaranteed a minimum assured purchase price of Rs 50 a kg. “We are committed to procure at that price, irrespective of price movement during the harvesting season. We would commence procurement from November 1 at Rs 50 a kg,” said Jitendra Jindal, vice-president of Vikas. Efforts to reach B D Agarwal, the managing director, were not successful.

The price of guar seed has halved in 10 weeks, to below Rs 42 a kg. The commodity for delivery in October was traded at Rs 42.10 a kg, while that of November and December delivery was quoted at Rs 41.3 a kg and Rs 41.70 a kg on the National Commodity & Derivatives Exchange. Guar gum contracts for delivery in October, November and December were traded at Rs 116.8 a kg, Rs 115.0 a kg and Rs 116.4 a kg, respectively.

“2012 was an exceptional year for guar seed and gum, which saw the price hitting Rs 330 a kg and Rs 1,000 a kg, respectively. Looking at this price level, farmers shifted aggressively from bajra and moth to guar seed this season. Consequently, sowing area and output are expected to rise this season by 150 per cent at least,” said Purushottam Isaria, president of the All India Guar Gum Manufacturers Association.

The favourable monsoon rain has helped. The Rajasthan Agriculture Board recently said the total sowing area of guar seed almost doubled at 817,000 hectares as on July 15 as against 475,000 ha on the same date last year.

“While the seed price might plunge below Rs 40 a kg, gum will see below Rs 110 a kg in the peak harvesting season,” said Prerana Desai, vice-president, Kotak Commodity Services.

Jindal says the company is thinking long term. Guar gum demand has been robust from abroad, especially from America, due to the shale gas boom (guar is a key constituent in this mode of production). And, “a high guar seed price to farmers this year will guarantee supply assurance from them for the future. Hence, the one-time hit on raw material price might be compensated later,” he said.

In 2012-13, total guar gum export jumped 30.9 per cent to Rs 1,948 crore from Rs 1,488 crore the previous year.

Performance (Rs crore)

Financial year	Sales	Net profit
2012-13	2906.36	344.58
2011-12	1063.57	154.68
2010-11	546.01	122.23
2009-10	458.98	119.95
2008-09	365.11	121.58
2007-08	305.30	42.25

Source: Bloomberg