The rise in cement prices over the last six months surely seems to have benefited the cement companies in a major way. After the turnaround posted by ACC, it is now Grasim's turn to dish out an excellent performance.
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The company's performance for the year is markedly higher than our projections, which were made in December 2000. The main reason for this has been the sustainability in the prices of cement. This sharp rise in profits has enabled the company to further cut its interest burden, thus driving profitability.
Grasim's cement business logged in a 8.8% growth in volumes at 9.2 million tonnes. Growth in the realisations per tonne too was higher by over 6%. This sharp growth boosted the division's profitability. In the VSF division, sales volumes were up nearly 6% even as realisations jumped over 8%. However, the performance of the division has been marred by the shutting down of its Nagda plant in view of the acute water shortage. The company however has adequate inventory to meet demand.
Among the other businesses, both chemicals and sponge iron performed well.
Grasim has benefited from a unique combination of higher volumes and realisations in its two key businesses - VSF and cement. Although the company continues to be confident about its future performance, it needs to be borne in mind that both are commodities and are subject to cyclical fluctuations in demand and prices.
The stock presently trades at Rs 291, implying a P/e multiple of 7x.
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