INDIAN RAYON AND INDUSTRIES LIMITED - Aditya Birla Nuvo, Ltd

CARBON BLACK
1999-00 1998-99 % Change
Effective Installed Capacity (TPA) 98,750 * 80,417 * 22.8
Production (Tonnes) 95,828 63,968 49.8
Sales Volume (Tonnes) 94,656 61,243 54.6
Gross Turnover (Rs. Crores) 262.7 176.5 48.8
Gross Realisation (Rs./Ton) 27,751 28,826 (-)3.7
Operating Margin (%) 19.3 23.0
* Installed capacity moved up to 110,000 tonnes towards end of the year with the de-bottlenecking of existing plants.
Review of Operations
The Carbon Black division reported impressive performance on the back of a recovery in domestic demand and strong exports. Operating
margins dropped marginally due to a sharp rise in feedstock prices, which could be passed on to customers only partially. The new plant near Chennai
stabilised operations successfully and leveraged on the advantages of coastal location to improve exports substantially.
The aggregate sales volume jumped 55% from 61,243 tonnes in 1998-99 to 94,656 tonnes in 1999-2000, consequent to the improved local
demand and better exports. Aggressive marketing and support of increased supplies from the new plant also contributed towards sharp rise in
volumes during the year. The Company’s market share has risen from 28% in 1998-99 to 31% during the year.
The domestic carbon black demand grew by 11%YoY benefiting from a turnaround in the automobile sector and the resultant rise in demand
for tyres, the single largest user segment. The introduction of new cars by multinational corporations and the rising aspiration levels of consumers
appear to have led to a high demand for cars. This had a positive impact on the demand for carbon black during the year.
On the export front, the Company benefited from a strong recovery in Asian demand and also leveraged on the coastal advantages of its new
plant near Chennai commissioned last year. Consequently, export volumes soared from 1,572 tonnes in 1998-99 to 8,769 tonnes in 1999-2000,
reflecting an increase of 58% YoY. Reflecting such a sharp rise in domestic as well as export sales volumes, the Company improved asset utilisation
from 80% in 1998-99 to 97% during the year. This is commendable considering that the year under review was the first full year of operations for the
Company’s new plant near Chennai.
The average realisation is marginally lower at Rs.27,751 per tonne and indicates a fall of 4% YoY. The fall would have been sharper except for
a rise in global carbon black prices and lower quantities of dumping by overseas players with the pick-up in demand in their respective countries.
Global carbon black prices have grown from US$ 320 per tonne in April 1999 to around US$375 per tonne during March 2000.
The company suffered a set back in terms of operating margins, which fell from 23% in 1998-99 to around 19% in 1999-2000, despite
improved volumes and marginally higher prices. The rise in the landed cost of Carbon Black Feed Stock (CBFS), a key input accounting for 65% of the
divisional production cost was the major influencing factor. CBFS prices have gone up by 50% to US$ 130 per tonne during the year, due to a spurt in
international crude oil prices. The impact of such a sharp rise in feed stock prices would have been even larger, but for further improvement in
consumption norms and lower production costs. A significant portion of the increase in CBFS cost has been passed on to the customers.
Outlook
We see a positive outlook for the Division. We expect the automobile sector to report sustained strong performance over the next few years. This
is likely to gain momentum in the years to come with the introduction of new models by multinational automobiles companies in India. Such a
development augurs well for the carbon black business, as the automobile sector drives growth in the demand for tyres. We forecast domestic carbon
black demand to grow by 6-8% annually.
The outlook for exports is buoyant as well. The recovery process in Asia, which began in 1999 is likely to continue in the short term. It will result
in a strong demand from Asian tyre manufacturers and offer better export prospects. In addition, the demand in Asia will lower the dumping of carbon
black in the domestic market at uneconomical prices.
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