Grasim, an Aditya Birla Group Company, today announced its results for the 3rd quarter ended 31st December, 2008. Its Consolidated Revenues were higher by 6% at Rs.4,632 crores (Rs.4,350 crores). Net Profit was lower at Rs.460 crores (Rs.721 crores) due to the weak performance by its Viscose Staple Fibre (VSF) business and higher input and energy costs. The performance is to be viewed in the backdrop of the unprecedented global economic downturn which has adversely impacted Company’s key businesses.
During the 9-months ended 31st December, 2008, Grasim’s Consolidated Revenues rose by 10% at Rs.13,578 crores (Rs.12,376 crores). Net Profit for the period was Rs.1,618 crores (Rs.2,011 crores). The Company earned a Cash Profit of Rs.2,824 crores, vis-à-vis Rs.2,948 crores in the corresponding period. Given the current economic environment and its impact on Company’s key businesses, the overall performance is considered satisfactory.
On a stand-alone basis, Grasim’s Revenues for the quarter stood at Rs.2,690 crores (Rs.2,615 crores). Interest cost rose by 90% as a result of commissioning of new projects and increased borrowings. Depreciation too was higher by 38% due to commissioning of new projects. These, coupled with the constrained VSF business performance and general slowdown in economy, impacted the Net Profit which stood at Rs.330 crores (Rs.554 crores). For the nine-months period, the Company earned a Net Profit of Rs.1,263 crores (Rs.1,565 crores) and Cash Profit of Rs.1,744 crores (Rs.1,899 crores).
The performance of VSF business was adversely affected due to depressed consumer demand for textile globally. Sales volumes were lower by 22%. The Company scaled down its production considerably in view of the impaired sales. Operating profits and margins dipped, also due to lower realization, higher pulp and sulphur cost and the weakening of rupee.
The demand for VSF is expected to remain muted until such time the textile consumption both in the domestic and western markets shows some signs of recovery. Margins are expected to remain under pressure, despite lower input costs, on account of further reduction in realization. The Company has reduced the prices of VSF further with effect from January, 2009 to prevent its substitution by competing fibres and imports.
In Caustic soda, production grew by 3%, while volumes rose by 9%. Higher caustic prices were negated by the abnormally low chlorine and HCL prices, which were down by almost 90% and 70% respectively over the corresponding quarter. Margins were depressed due to a steep increase in salt and power costs. The lower demand from fibre segment is likely to affect the caustic volumes.
Production of Cement was higher by 9% at 4 million tons. Volumes at 4.05 million tons registered an increase of 7%, aided by new capacity and sectoral growth. RMC volumes too were up by 18%. Though realizations improved, the impact was more than offset by the soaring input costs, thereby affecting margins adversely.
Cement Subsidiary: UltraTech Cement Limited (UltraTech), a subsidiary of Grasim, reported a lower Net Profit at Rs.237 crores (Rs.281 crores). Variable costs escalated due to a sharp increase in prices of coal and raw materials. The combined sales of cement and clinker reflected a growth of 7%.
Grasim and UltraTech commissioned their clinkerisation units at Shambhupura (Rajasthan) and Tadpatri (A.P.) respectively, during the year. The split grinding units of Grasim at Dadri (U.P.) and that of UltraTech at Ginigera (Karnataka) of 1.3 million tons each also became operational during the year. Additionally, thermal power plants of 73 MW and 96 MW were commissioned by Grasim and UltraTech respectively.
The grinding unit of Grasim at Shambhupura and that of UltraTech at Tadpatri (A.P.) are expected to be operational in Q4FY09. At Kotputli (Rajasthan), the clinkerisation unit is expected to be commissioned in Q4FY09, while the grinding unit is expected to go on stream by Q1FY10.
The real estate sector continues to be plagued by inadequate demand and poor availability of funds. The slowdown in construction activities and corporate capital investments would lead to slackening of demand for cement. The sector is now expected to grow in line with GDP. The price of cement and consequently, operating margins, may witness pressure in FY 10 and FY 11 owing to the commissioning of large capacities in a phased manner over the next two years.
Commissioning and stabilization of new capacities in Grasim and UltraTech should spur growth in volumes. Going forward, the Company will continue to focus on sustaining plant performance and optimising efficiencies.
The Company will continue to fortify its leadership position in the Cement and VSF sectors. With substantial increase in capacities, improved cost optimization, higher productivity and strong fundamentals, the prospects for the Company appear positive.
