High production cost slashes Salvo Chemical’s profit in Dec quarter

Salvo Chemical Industry Ltd has reported a 54% year-on-year decline in profit for the October-December quarter of the ongoing fiscal year 2022-23 owing to costly production and strengthening of the US dollar against the taka.

During the period, the company's net profit stood at Tk2.38 crore, which was Tk5.10 crore in the same quarter of the previous fiscal. Earnings per share stood at Tk0.37.

The company's revenue increased by 7.8% to Tk35.5 crore in the December quarter of FY23 from Tk32.94 crore in the same quarter a year ago. 

But its cost of goods sold also increased by 28.8% to Tk29.60 crore, which was Tk22.98 crore in the previous year.

According to the company's disclosure on the Dhaka Stock Exchange (DSE) on Monday, its earnings declined because of an increase in the prices of both local and imported raw materials, and also because of currency devaluation and high energy prices. 

Besides, the company's net operating cash flow decreased because of a significant increase in operating expenses and cash paid to suppliers. 

In the July to December period of 2022, Salvo Chemical's revenue was Tk74.63 crore, and net profit was Tk6.47 crore.

In May 2022, the company announced the starting of a corn starch production unit after setting up all the required machinery. It invested Tk70 crore to set up the unit, which is expected to generate Tk32 crore in yearly revenue. 

In FY22, the company recommended a 10% cash dividend for its shareholders. 
Salvo Chemicals mainly produces sulfuric acid, sulfate, battery-grade water, and glucose. It got listed on the DSE in 2011. 

Industry insights

The first half of FY23 has not been a great period for chemical makers, as only one company – Kohinoor Chemicals – posted profit growth, while all the others failed to weather the inflation storm. 

Industry people mainly blamed the strong dollar, increasing prices of raw materials, freight costs, difficulties in opening letters of credit (LCs), and decline in production for the dismal performance of the sector. 

They said the prices of raw materials at both homes and abroad went up by around 30% to 140%, while freight costs straight up doubled and even tripled for some products during the pandemic time. 

The chemical manufacturers, which sell their products mainly to local small and medium enterprises (SMEs), faced a decline in sales as local consumption dropped, and also production was severely hampered by gas and power disruptions. 

Consequently, many small companies ran operations partially to survive, while some others closed down their operations temporarily.
Industry insiders also blamed the unhealthy competition created by abusers of the bond facility. 

They said that a number of companies import chemicals using the bond facility and sell them in the local market at comparatively low prices. In this situation, local chemical manufacturers lose business.