Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Grasim: Efficiency benefits - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 1, 2002

    Grasim: Efficiency benefits

    Grasim Industries has reported a 5% drop in sales and a 30 basis points fall in operating margins for the third quarter ended December 31, 2001. This is primarily on account of weak performance of some of its division like Viscose Staple Fibre (VSF) and sponge iron. Capacity additions by some of the large players like Gujarat Ambuja and the resultant rise in regional supplies have subdued performance of its cement division as well.

    (Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
    Net sales 11,890 11,268 -5.2% 35,771 35,182 -1.6%
    Other Income 182 216 19.0% 517 559 8.2%
    Expenditure 9,815 9,334 -4.9% 29,958 29,000 -3.2%
    Operating Profit (EBDIT) 2,075 1,934 -6.8% 5,813 6,181 6.3%
    Operating Profit Margin (%) 17.5% 17.2%   16.2% 17.6%  
    Interest 593 514 -13.3% 1,810 1,467 -18.9%
    Depreciation 634 635 0.2% 1,886 1,880 -0.3%
    Profit before Tax 1,030 1,001 -2.8% 2,633 3,393 28.9%
    Extraordinary items (25) 100   (103) (448)  
    Tax 174 203 16.4% 387 707 82.7%
    Profit after Tax/(Loss) 831 899 8.1% 2,142 2,237 4.4%
    Net profit margin (%) 7.0% 8.0%   6.0% 6.4%  
    No. of Shares (m) 91.7 91.7   91.7 91.7  
    Diluted Earnings per share* 36.3 39.2   31.2 32.5  
    P/E Ratio (x)   7.4     8.9  

    Though operating margin for its VSF division has increased from 28% in 3QFY01 to 30% in 3QFY02 on account of a 16% fall in pulp prices, demand continues to remain sluggish. While production of VSF has declined by 14%, average realisation is also lower by 4%. The company's measures to improve exports have resulted in a 33% growth in deemed exports sequentially. However, it is lower by around 7% YoY, which could be attributed to the slowdown in the global economy. In the second quarter of the current fiscal, Grasim closed its pulp & fibre plants in Mavoor. This has enabled the company to augment operating profits of its fibre division.

    The cement division has reported a 9% growth in cement sales as against the industry growth of 12%. Towards availing sales tax benefits, most of the cement majors have increased cement capacity in the first nine months. This has resulted in higher regional supplies notably in Western and Northern region. While Grasim's cement sales increased by 22% in the Northern region, it is 9%, 1% and 7% in Eastern, Southern and Western markets respectively. In line with expectations, realisations have gone up in the Northern markets whereas it has declined by 7% in the Southern region. Grasim has commenced commercial production at its 1 million ton per annum (MTPA) cement grinding plant at Bhatinda, Punjab in 3QFY02.

    But there are some grey areas for the company as well. The textiles division of the company continues to suffer from sluggish market conditions. Fabrics, which contributed to around 65% of the company's sales, has been facing intense competition from imports. Higher competition and subdued prices have exercised downward pressure on operating margins. Similarly, average realisation of sponge iron has declined by 5% in 3QFY02 thus dragging turnover down by 23%. Though Grasim has managed to increase operating margins of its sponge division marginally, the slowdown in both the domestic as well as global economy are a cause of concern.

    Extraordinary item in 3QFY02 here pertains towards the following items: Loss on closure of its fibre plant at Mavoor Rs 369 m, employee separation costs to the tune of Rs 31 m and Rs 181 m towards excess provision for income tax pertaining to earlier years' written back. This also includes the loss on sale of Grasim's entire shareholding in Birla Technologies at Rs 11.5 per share to PSI Datasystems, a subsidiary of Indian Rayon, another Aditya Birla Group Company.

    Going forward, the cement division is expected to be the key growth driver of the company. Thanks to the government's thrust in developing infrastructure in the country combined with the robust housing industry, cement demand over the next three years is expected to increase 8% per annum. Consolidation will also increase the pricing power of key players like Grasim in the long run (assuming that demand sustains). The company also acquired a 10% stake in Larsen & Toubro at Rs 306 per share (total consideration is estimated at Rs 7.6 bn). Modernisation of its cement plants, capacity expansion through debottlenecking. setting up captive power plants and export led growth could also enable Grasim to post higher margin growth in the coming years. The stock currently trades at Rs 291 implying a P/E multiple of 9x annualised nine months earnings.



    Equitymaster requests your view! Post a comment on "Grasim: Efficiency benefits". Click here!


    More Views on News

    UltraTech: Post-Acquisition Cement Capacity Augmented to 93 MTPA (Quarterly Results Update - Detailed)

    Aug 11, 2017

    UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.

    Ambuja Cement: Fall in Other Income Drag Bottomline Lower (Quarterly Results Update - Detailed)

    Aug 11, 2017

    While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.

    ACC: Cementing Growth through Capacity Expansion and Favorable Sectoral Developments (Quarterly Results Update - Detailed)

    Jul 20, 2017

    Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.

    UltraTech: One of the Weakest Quarters in Years (Quarterly Results Update - Detailed)

    May 18, 2017

    Cement demand was weak because of subdued housing demand, volatile cement prices, and rising fuel costs.

    Ambuja Cem: Net Profits zoom up 361% YoY During Jan-March Quarter (Quarterly Results Update - Detailed)

    May 8, 2017

    Stock price jumps up on Ambuja-ACC merger talks...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 16, 2017 (Close)


    • Track your investment in GRASIM IND. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Compare Company With Charts