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Nirma sinks 8% on news of 15% fall in net profit

Shares of Indian detergent and soaps maker Nirma Ltd fell by as much as 8 per cent on Monday after its October-December quarter results showed a new project was a drag on profitability, analysts said.

The stock fell as much as Rs 55.15 to a low of Rs 650.10. By mid-morning it had recovered to Rs 693.90, still 1.6 per cent lower than Friday's close of Rs 705.25, while the Sensex was 1.42 per cent higher.

The company announced at the weekend a 15 per cent fall in third-quarter net profit to Rs 648.9 million, despite a 46 per cent rise in net sales to Rs 5.2 billion.

Depreciation charges rose 350 per cent to Rs 357.7 million, while interest costs jumped to Rs 298.7 million from Rs 36 million a year ago. The company attributed those increases to the construction of a new soda ash plant that began operating last year.

"Even at 80 per cent capacity utilisation, the soda ash project has a very low return on capital employed of around 10 per cent and this will continue to hit overall profit margins for some time to come," said an analyst at a domestic brokerage.

Another analyst said the company was losing market share in the washing powder segment despite gains made in the toilet soaps and detergent segments.

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