High input costs affect margins of soda ash makers

Soda ash and caustic soda makers are experiencing a tough time, as high input and energy costs seem to be affecting the profit margins. Some leading alkali manufacturers have witnessed their profits shrinking, due to the high raw material costs.

Even as the demand for alkali products remained robust during the year, price pressure from key inputs such as salt and energy weighed heavily.

“There has been a sharp rise in salt prices in the second half of 2010-11. Also, high energy charges hampered the profit margins for the alkali makers. Such a high input cost scenario is hampering the margins of the soda ash and caustic soda makers,” said Mudit Jain, president, Alkali Manufacturers’ Association of India.

According to industry players, salt prices have shot up sharply in the past year. The salt prices were quoted at Rs 600 a tonne last year, and now at Rs 1,500-1,800 a tonne. The alkali industry consumes nearly 9-10 million tonnes of salt every year.

Tata Chemicals has registered a decline of six per cent in standalone net profits for the year 2010-11 at Rs 408.49 crore against Rs 434.78 crore reported in the previous year.

Gujarat Heavy Chemicals Limited (GHCL) has registered a fall of 17 per cent in the profit after tax (PAT) at Rs 117 crore from Rs 141crore in the previous years. Gujarat-based leading caustic soda maker, Gujarat Alkalies and Chemicals Limited (GACL) has seen a sharp decline of 33 per cent in the net profits for the year 2010-11 at Rs 114 crore against Rs 172 crore.

"The financial performance has been discouraging as the soda ash and caustic soda business put pressure on the profit margins. The raw material cost had seen sharp surge in the second half of FY 11. This caused companies to bear the cost pressure at least for the short run. But now as they are prepared to pass-on the price rise to their customers, the outlook seems stable for these companies. They should be able to at least maintain the margins reported in the Q4 for the next quarter," said a senior research analyst at Edelweiss Capital.

The industry is optimistic about the price trend and expects margins to improve in the coming months. "The first nine months of the last financial year witnessed some cost pressure. But there has been a noticeable improvement in the caustic prices from the fourth quarter onwards and we are hopeful for the same trend to continue in the first-half of the current financial year," said Guruprasad Mohapatra, managing director, GACL. Companies have already passed on the rise in the raw material prices to the end products. The prices of caustic soda liquid and flax have jumped nearly 15 per cent over last year.