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Grasim: Lacklustre performance

Oct 31, 2001

Grasim Industries, the cement and textiles major, has reported a stagnant growth in turnover and a 6% rise in profit before tax for the quarter ended September 30, 2001. The subdued topline could be due to a slower growth in volumes in its fabrics division.

(Rs m)2QFY012QFY02Change
Sales 11,922 12,072 1.3%
Other Income 212 197 -7.3%
Expenditure 9,945 10,156 2.1%
Operating Profit (EBDIT) 1,976 1,916 -3.1%
Operating Profit Margin (%)16.6%15.9% 
Interest 605 479 -20.9%
Depreciation 630 619 -1.7%
Profit before Tax 954 1,016 6.4%
Extraordinary item (65) (525) 
Tax 60 175 190.8%
Profit after Tax/(Loss) 830 316 -61.9%
Net profit margin (%)7.0%2.6% 
No. of Shares (eoy) (m) 91.7 91.7  
Earnings per share (Rs)* 36.2 13.8  

Margins have fallen by 70 basis points to 15.9% in 2QFY02 and is estimated to be on account of pressure on margins on its fabrics and textiles divisions. Cement division, on the other hand, is expected to have performed better with other major cement companies like Gujarat Ambuja and L&T reporting an increase of 5% in average realisation per metric tonne.

The company had entered into a memorandum of settlement effective July 2001 with the workers and staff unions of its pulp and fibre units situated at Mavoor (Kerala) for closure of both these units. The total compensation for retrenchment is Rs 553 m, of which the company has provided one-third of this amount i.e. Rs 184 m in the second quarter. The balance two-third will be provided in next two quarters equally. Consequent to the closure, the saving in recurring expenditure on employees and other standing charges is estimated at Rs 270 m annually.

Extraordinary item also include Rs 190 m towards write-down in value of fixed assets consequent to the closure of the Mavoor units, which has been fully provided for in the current quarter itself.

Both interest and depreciation charges have fallen thus resulting in a higher growth in pre-tax profits. The scrip is currently trading at Rs 281 on a P/E multiple of 20.3x annualised 2QFY02 earnings. If one were to exclude the adjustments for extraordinary, the scrip is trading at a P/E multiple of 7.7x annualised 2QFY02 earnings.

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