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Grasim: OPM jumps 5%

Jul 31, 2001

On the back of a 5% jump in operating margins, Grasim has reported a 72% growth in net profits for the quarter ended 30th June 2001. The rise in operating margins has come about despite a marginal decline in sales, implying that Grasim was able to cut costs significantly. Added to this is the 23% decline in interest expenditure, which further boosted profits.

(Rs m)1QFY011QFY02Change
Net Sales 11,959 11,842 -1.0%
Other Income 122 145 18.8%
Expenditure 10,198 9,510 -6.7%
Operating Profit (EBDIT) 1,761 2,332 32.4%
Operating Profit Margin (%)14.7%19.7%
Interest 613 475 -22.5%
Depreciation 623 626 0.5%
Profit before Tax 648 1,376 112.3%
Other Adjustments (14) (24)
Tax 40 230 475.0%
Provision for deferred tax - 100
Profit after Tax/(Loss) 594 1,022 72.0%
Net profit margin (%)5.1%8.8%
No. of Shares (eoy) 72.3 72.3
Diluted Earnings per share* 32.9 56.6
*(annualised)

The star performer was the company's cement division, which logged in a growth of 29%. Of this, 4.5% was volume growth, while the rest was due to higher realisations. However, it needs to be pointed out that this 24% YoY rise in prices is unsustainable as last year the pricing environment was very bad. As the year progresses, this growth in realisations will get tempered.

The VSF division was hit due to shortage of water at its Nagda plant. As a result the plant operated at a capacity utilization of 59% (last year 95%). VSF sales volumes dipped by 27% even as realisations posted an increase of 10%. Grasim was able to limit the decline in sales by building inventory in anticipation of the water supply. With a normal monsoon, the company should register a pick up in VSF volumes.

Grasim's sponge iron unit continues to suffer from shortage of natural gas. Production was down 4.5%, while sales fell 8.5%. The division however recorded a 5% increase in realisations. We are projecting a 9% topline growth for the company for FY02. We expect the bottomline to grow 29% for the full year, with operating margins at 18.3%.

The stock currently trades at Rs 314, implying a price to earnings multiple of 5.5x based on annualised 1Q earnings.

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