The Hindu Business Line : IPCL: Operating margins under pressure

INDIAN Petrochemicals Corporation Ltd's (IPCL) report card reveals a sedate performance over the second quarter. Earnings before extraordinary income and taxes show a growth of 28.69 per cent compared to the same period last year.

However, on a sequential basis it is down 3.78 per cent compared to the April-June quarter.

The write-back of a provision of Rs 120 crore helped in boosting post-tax earnings, which more than doubled to Rs 303 crore.

Operating margins came under pressure due to three factors.

First, higher input costs following the upward revision in natural gas prices in June and also higher naphtha prices following the rising trend in global crude oil prices.

Second, global demand growth slowed down considerably during the second quarter and was almost flat at between 2-3 per cent.

IPCL's production volume growth, during the first half, for the key products— polypropylene, poly vinyl chloride and polyethylene— was flat at 2 per cent.

Finally, product prices did not rise in proportion to the increase in feedstock prices and thus ate into margins. Operating margin for the second quarter at 20.44 per cent was lower than the 21.28 per cent recorded in the first.

The second half promises to be more of the same if the trends now are any indication. Polymer prices are expected to rule steady with very little upside expected.

Demand growth could be the only driver for higher income and earnings but if the trend seen in the first three weeks of October sustains then we could be looking at a tepid performance in the second half for IPCL.

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