Grasim Industries Witnesses A Rise In Revenues; Profit Declines

Grasim Industries announced its Dec 2012 quarter results, where its consolidated revenues increased by 7% to Rs 6768 crore on a YoY basis. However, the profit after tax declined by 13 % to Rs 549 crore. A dismal performance in the Viscose Staple Fibre (VSF) segment resulted in a poor performance on the bottomline front. The other two divisions viz. Cement and Chemicals have performed well on the operational front. Let’s have a detailed look at the performance of these three divisions.

VSF

In the VSF division, the following factors emerge categorically. The first factor is that the Global textile trends affected VSF business. Market conditions for the textile industry continue to be challenging, compounded by two factors of surplus VSF capacity in China and depressed cotton prices due to large inventory. VSF prices are hovering around their bottom and hence the PBIDT for the division of the Dec 2012 quarter declined to Rs 187 crore from Rs 319 crore in Dec 2011. Even the JV’s performance impacted due to a substantial fall in pulp realisations. Further the initial losses at Terrace Bay during the stabilisation period also created a pressure on business.

Cement

In the cement division, the demand in the industry remained subdued during the quarter, arising out of the present slowdown in the economy. The volumes were flat at 10.41 million tonne for the Dec 2012 quarter as against 10.43 million tonne in Dec 2011. Even the prices remained under pressure with a marginal increase of 7% on a YoY basis. Profitability, however, records marginal improvement, helped by lower energy cost (down by 5% on a YoY basis). On the financial front, the net revenues for the quarter stood at Rs 5164 crore and PBIT at Rs 931 crore. Net Profit for the Dec 2012 quarter stood at Rs 608 crore (Rs 598 crore in Dec 2011). Here, Grasim’s shares stands at Rs 367 crore (Rs 361 crore). As regards the expected growth going ahead, the management expects a long-term growth of 8% in the cement division.

Chemicals Business 

In the chemical business, the performance was better than expected, where the topline for the Dec 2012 quarter stood at Rs 236 crore (Rs 210 crore in Dec 2011). PBIT for the similar period increased to Rs 52 crore from Rs 38 crore. A better realisation and lower energy cost was the major reason behind the same. Considering all these factors, we recommend a hold on the counter.