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: Higher OPM boosts bottomline - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 25, 2002

    Grasim: Higher OPM boosts bottomline

    Grasim, the AV Birla group flagship, has announced its Seprtember quarter results reporting an 8% fall in topline, while its net profits are up 308%. A YoY comparison of the bottomline is not justified as in 2QFY02 the company had incurred an extraordinary expense of Rs 525 m. Not accounting for the extraordinary expense, the bottomline has grown by 53%.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Net Sales 11,080 11,129 0.4% 22,252 22,484 1.0%
    Other Income 197 366 85.8% 342 459 34.2%
    Expenditure 9,164 8,628 -5.9% 18,004 17,529 -2.6%
    Operating Profit (EBDIT) 1,916 2,501 30.5% 4,248 4,955 16.6%
    Operating Profit Margin (%) 17.3% 22.5%   19.1% 22.0%  
    Interest 479 432 -9.8% 954 874  
    Depreciation 619 628 1.4% 1,245 1252 0.5%
    Profit before Tax 1,015 1,808 78.1% 2,391 3,289 37.5%
    Extraordinary items (525) (16)   (549) (33)  
    Tax (175) (505) 189.4% 505 915 81.2%
    Profit after Tax/(Loss) 316 1,287 307.6% 1,337 2,341 75.0%
    Net profit margin (%) 2.8% 11.6%   6.0% 10.4%  
    No. of Shares 72.3 73.0   73.0 73.0  
    Diluted Earnings per share* 17.5 70.6   36.7 64.2  
    P/E Ratio   4.3     3.2  
    (* annualised)            

    Topline growth has been subdued mainly on account of pricing pressure on its cement business. While cement volumes have grown 20% YoY, realisations have de-grown by 15%. The company's presence in oversupply markets like the western and southern regions of the country have led to a significant fall in realisations. The VSF division's performance has however been robust, with a 38% jump in volmues. Realisations have however fallen by 4%.

    Operating expenses 2QFY02 2QFY03 Change
    Raw materials 3,153 2,797 -11%
    Employee 836 787 -6%
    Power 1,810 2,098 16%
    Freight 1,330 1,188 -11%
    Finished goods 574 21 -96%
    Other costs 1,659 1,749 5%
    Total 9,362 8,640 -8%
    Growth Volumes Realisations
    Cement 20% -15%
    VSF 38% -4%
    Sponge iron 33% 2%
    Caustic soda 13% 9%

    Grasim has performed excessively well on the operational front. The company has improved operating margins by nearly 500 basis points. Significant reduction in major cost heads like raw material, employees, and freight has led to this improvement in operational performance. Also a significant reduction in trading activity has led to lower expenses on purchase of finished goods. This has further reduced operational expenses.

    The company has been able to reduce its interest costs by nearly 10%. Lower interest rates have enabled the company to retire and restructure high cost debt. There has however been a significant jump in tax expenses. In the September quarter of FY02 the company had incurred extraordinary expenses relating to VRS, sale of assets and employee retrenchment costs (Rs 525 m). During 2QFY03, these extraordinary expenses realte only to VRS (Rs 16 m), which has reduced considerably.

    The stock is currently trading at Rs 300 a P/E of 4x its annualised 2QFY03 earnings. Grasim has improved operating margins considerably despite a difficult cement industry environment. Overall operating margins have improved inspite of falling realisations. The company's commitment to the cement business is apparent as it has already announced an open offer for cement major L&T. However benefits from this move may not be apparent in the near term. Performance of the VSF business has highlighted the fact that the company's initiative to target exports is paying off. Upturn in the steel indutry has helped its sponge iron business.

    Going forward the cement business fortunes are hinged on realisations. Due to overcapacity in the cement markets, realisations have taken a beating and are not expected to improve in the next 4-5 months. Hence the cement business may continue to exhibit weakness in the near term. In the long term however, the cement business holds good prospects for Grasim. Though exports have helped the VSF business, but a weak international economic scenario may see volumes tapering further during the rest of the year. Having said that, expansion of the market by the company is likely to help in the long run. Valuations look attractive at current levels but the stock may be subdued due to poor over all market sentiment.



    Equitymaster requests your view! Post a comment on "Grasim: Higher OPM boosts bottomline". 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


    Detailed Financial Information With Charts