Essel Propack to hike prices after profit drop

Essel Propack, which saw its net profit drop in the second quarter due to a sharp rise in raw material costs and a global slowdown, has initiated several steps to arrest the slide.

Essel Propack is part of the diversified Essel Group and is currently the world’s largest specialty packaging company with operations spread across 12 countries.

The company’s net profit for the July-September period fell 31% to Rs13.46 crore as against Rs9.15 crore in the same period of the last fiscal on account of a subdued European market, a surge in raw material costs and a 15% rise in labour costs domestically.

Falling demand from Germany and third party issues in China, too, hit the bottomline.

“The sharp drop in profits is a matter of concern and we have identified several corrective steps to overcome it in the coming quarters,” said Ashok Goel, vice chairman and managing director of the company during an analyst conference call on Monday.

Goel said the company is working on measures to neutralise the impact of high labour costs which rose due to the imposition of a minimum wage cap in some states. Besides, Essel is planning to reduce inventory levels substantially to maintain regular cash flows.

The major step in the direction is to increase the price of its products across all platforms.

While the quantum of price hike was not disclosed, Goel said, “We have suffered a substantial loss in profitability due to foreign exchange differential. In spite of increasing prices last quarter, there is still 2.5% impact of rupee depreciation and hence we have initiated steps to immediately increase the price of our products.”

Other steps include focusing on more profitable product mix, increasing capacity utilisation and looking for alternative power source.

While analysts are wary of the prospects of the company in terms of margins, they say the company will be able to maintain volume growth of over 12% for the next two fiscals.

A senior Essel official said while Germany will continue to remain in the grip of a slowdown till December, its American operations are fast approaching breakeven at operating profit levels.

Essel is also focusing on increasing its capacity utilisations across the world to take it up to beyond an average of 70%.

“There are possibilities that our profitability margins could scale the 2006 levels by fiscal 2013,” the official said.