Piramal Glass Ceylon first quarter profit hurt by lower sales, higher finance costs

Company cries foul over CPC’s failure to pass crude price benefit on furnace oil

Piramal Glass Ceylon PLC, the local unit of Piramal Glass Limited, India reported earnings of 11 cents a share or Rs.105 million for its April – June quarter (1Q18), down from 12 cents a share or 4.5 percent from the same period last year as sales weakened and the finance cost shot up. 

The interim report for the quarter showed that the sales had come down by about 17 percent to Rs.1.4 billion from a year ago due to dampened demand from both domestic and export markets. 
The company said the recent floods also impacted its supply chain although the company’s operations itself was not disturbed. 

“A dip in the overall domestic market was experienced which impacted the sales in all segments”, the company said in an earnings release. 

Piramal is Sri Lanka’s sole manufacturer of moulded glass containers for the food and beverage, pharmaceuticals, cosmetics and perfume industries. 

Exports declined mainly into India as the Indian government implemented the Goods and Services Tax but the company said the exports to other markets such as Australia, Unites States and Canada showed positive growth. 

Company’s exports account for little above 20 percent of the total sales. 

Last year, the company’s performance was adversely affected due to the temporary closure of its Horana manufacturing plant for two months during which time the company had to meet the demand through imported bottles. 

Now that the new facility is in operation, domestic market is supplied mainly with the domestic manufacturing, the company said. 

Although the sales came down, gross profit rose by 14.5 percent year-on-year (YoY) to Rs.351.2 million, perhaps supported by the new facility and the new dual furnace firing aimed at containing the energy cost – the company’s biggest challenge. 

Meanwhile, the company raised serious concerns over the failure on the part of the Ceylon Petroleum Corporation for not revising down on the furnace oil for past four years although the global crude oil prices have more than halved. 

“The crude oil prices which hit a US $ 120 a barrel in 2011 is now hovering below US $ 50 since last four years and as at date is more than 50 percent reduction in the prices. 

Yet the corresponding furnace oil prices have not been addressed accordingly. 

This state of affairs is affecting our competitiveness in the international market. The company has been requesting the government to introduce a formulae pricing based on international crude oil price which will be a fair transparent pricing mechanism”, the company said. 

Meanwhile, the operating profit rose by 44 percent to Rs.214.9 million as there were some cost savings on selling and distribution expenses but the profit before tax fell by little below 2.0 percent YoY to Rs.138.8 million due to heavy increase in finance costs, which rose to Rs.76.3 million from Rs. 7.8 million a year ago.

This was due to the increase in interest rate on the Rs.3.0 billion long term loan taken to fund the aforementioned project.  

 
In any case, the recent capacity enhancement at its Horana Plant and the dual furnace firing is expected to have only a limited impact on the company’s immediate financial performance, Bartleet Religare Securities (Private) Limited said in a recent note. 

By end of June 2017 India’s Piramal Glass Limited held 56.45 percent stake in the company while the state-controlled private sector pension fund, Employees’ Provident Fund held 9.50 percent stake being the second largest shareholder. 

Norges Bank, the Central Bank of Norway, held 2.68 percent stake being the third largest shareholder of Piramal Ceylon.   

Commercial Private Limited and Apposite Trading Pvt Limited have entered the top 20 shareholders during the quarter, each accounting for 0.5 percent of shares in the company. Both companies appear to be of Indian orogin.