SIND ALKALIS' RS. 4.2 M LOSS
Increasing cost of inputs may be a problem but inability to solicit credit is the largest constraint
By SHABBIR H. KAZMI
Dec 07 - 13, 1996
Sind Alkalis, a company acquired by the employees of the company during the process of privatization and listed at Karachi Stock Exchange, in spite of achieving 8.35% increase in sales in 1996 has registered before tax loss of over Rs. 4.28 million as against a pre-tax profit of Rs. 16 million during 1995.
The reasons for the decline in profit were increased cost of goods sold which increased from over Rs. 371 million in 1995 to slightly more than Rs. 491 million during the period under review. The cost of sales jumped from 82% to 85.32% as percentage of sales.
While the operating expenses increased by % from Rs. 50.48 million in 1995 to Rs. 58.43 million the financial charges increased from Rs. 17 million to nearly 21 million during the period - an increase of %.
As a result of incurring loss the company has not declared any dividend. It had declared 20% cash dividend in 1995.
COST OF SALES
According to the management of the company, the increase in cost of goods sold was due to many factors including hike in gas tariff, high utility charges and heavy financial cost on account of leasing arrangements. But more importantly while there have been increases in input costs along with the inflationatory trend, there has been no corresponding increase in sale prices of two products manufactured by the company namely soda ash and sodium bicarbonate.
Although the sales volume remained more or less at the same level but the market remained subdued due to start of a new sodium bicarbonate plant by ICI Pakistan, cheaper imports and levy of sales tax on the B.P. grade of sodium bicarbonate.
Although Sind Alkalis is the second largest soda ash manufacturing company in the country the disparity between the installed capacity of ICI Pakistan and the company is very high. While Sind Alkalis has an installed capacity of nearly 50,000 tonnes for quite some time ICI Pakistan has expanded its capacity to 200,000 tonnes per annum and therefore enjoys better economies of scale.
Although, ICI Pakistan caters for the northern market and consumers in the southern part of the country buy their requirement from Sind Alkalis, the increase in installed capacity by ICI Pakistan has given it an edge over Sind Alkalis.
In spite of the best efforts of the management, the company has not been able to get financing for its proposed expansion project of 50,000 tonnes per annum. Lately it has scaled down the size of expansion into phases. Currently, the company is planning to undertake expansion by 10,000 tonnes and expects to complete the work within the next two/three years.
After the expansion by ICI Pakistan the soda ash supply almost matches the demand. However, the demand for soda ash and sodium bicarbonate is growing at around 7% per annum and there is need for installation of new manufacturing capacity. The management of the company believes that when additional capacity comes in operation, it will be able to achieve better economies of scale.