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Grasim Industries: Riding the economic revival - Views on News from Equitymaster
 
 
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  • Jul 28, 1999

    Grasim Industries: Riding the economic revival

    Grasim Industries has posted a turnover of Rs 10.9 bn (up 20% YoY) and a net profit of Rs 590 mn (up 48% YoY) for the quarter ending 30th June 1999.

    Grasim (FY99 Turnover Rs 34.13 bn), part of the Aditya Birla Group of companies, has interests in viscose staple fibre, cement (28% of sales), textiles and sponge iron. The company had acquired Dharani Cements (0.9 mn tons), Shree Digvijay Cements (1.3 mn tons), and the cement division of group company Indian Rayon (3.0 mn tons) in 1998. Post completion of the project, Grasim's cement capacity is expected to touch 11.58 mn tons.

    The company's operating profit margins have dropped to 16.7% from 17.1% during the same period. This is mainly because of the depressed economic conditions, which hurt price realisations in almost all the divisions.

    Grasim's product profile is heavily biased towards commodities. In commodities, as it is difficult to differentiate one company's product from another, a company is unable to charge a premium price or buck a downward trend in prices due to say quality factors. The prices move in line with prevailing market prices and this makes it essential for the company to control costs, rather than trying to manipulate profits. Moreover, the business becomes volume driven.

    Over the past few years, commodity prices have been languishing near all time lows due to falling demand. However, if the recent uptrend in prices of commodities sustains, the profit margins of the company could move up, boosting the bottomline of the company.

    Market View:
    Analysts for long have rated this company as a 'HOLD' or 'SELL' largely on account of the diversified nature of the company. However, some analysts are now taking a fresh look at the company as the management is taking steps to restructure its business portfolio.

     

     

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