For the latest quarter ended June 30, HNG’s operating margin — calculated as a percentage of operating income to net sales — dipped to nearly 8 per cent, from 12 per cent in the same period last year.According to L.N.Mandhana, Senior Vice-President and CFO, input costs went up by over 30 per cent in the last two years.
But a corresponding increase in product prices has not happened.
“Pressure on margins is due to an increase in input prices, particularly, in power and fuel costs. Over the last two years margins were subdued by around 4-5 percentage points. Margin pressure is likely to continue for another 12-15 months,” Mandhana told Business Line. This apart, HNG incurred a capital expenditure around Rs 1,600 crore in setting up two 650 tonnes a day unit — one each at Naidupeta and Nashik.
“It will take another year for the new units to run at optimum capacity. Till then it will exert a pressure on margins,” he added.
HIKE IN PRODUCT PRICES
The company is also planning to hike product prices by 6-8 per cent by December to offset the rise in input costs. Product prices have been hiked by 25 per cent in the last two years, he said.
A steady demand, of around 12 per cent annually, will help ensure sales despite the price hikes. The Rs 1,900-crore HNG caters to various sectors such as alcoholic beverages, pharmaceuticals and perfumes.
Using natural gas to run its furnaces in two — Bahadurgarh and Neemrana — of its seven units will lead to cost cutting. About 30-35 per cent of HNG’s total sales are energy costs, Mandhana said. “We are using natural gas supplied by GAIL. This gives us cost arbitrage.”
He, however, could not state the exact amount of savings the company is likely to gain through the use of natural gas.