Grasim Industries: Betting on cement - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Grasim Industries: Betting on cement

Jul 28, 2003

Grasim, the third largest cement producer in the country, has reported a modest 3% rise in revenues while the net profits of the company increased by a healthy 24%. Improvement in bottomline has been mainly due to better operational efficiencies as well as reduced interest expenses.

Rs m1QFY031QFY04Change
Net Sales 11,355 11,747 3.5%
Other Income 93 211 127.2%
Expenditure 8,901 9,065 1.8%
Operating Profit (EBDIT) 2,455 2,683 9.3%
Operating Profit Margin (%)21.6%22.8% 
Interest 442 391 -11.5%
Depreciation 624 670 7.4%
Profit before Tax1,4811,83223.7%
Extraordinary items-17-27 
Tax 410 500 22.0%
Profit after Tax/(Loss) 1,054 1,305 23.8%
Net profit margin (%)9.3%11.1% 
No. of Shares 92.0 92.0  
Diluted Earnings per share*45.856.7 
P/E Ratio  9  
(* annualised)   

A 15% decline in sales of the VSF division has resulted in poor contribution to the topline. Poor capacity utilisation has taken a toll on the sales volumes of the company. Realisation of this division, however continue to improve. The company’s cement division managed a 5% increase in sales but was not able to contribute much to the topline, as the realizations remained stagnant. The sponge iron division however reported a stellar performance with realizations increasing by 32% on account of strong demand from the western markets. The company’s chemical division also bore the brunt of water shortage as its capacity utilization went down to 57% and its sales also declining by 7%.

As far as the operating margins are concerned, they have gone up marginally to 23% from 22% mainly on account of efficient use of power and reduced freight costs. The operating margin of the VSF division was down to 28% mainly on account of reduced economies of scale and higher input costs. The cement division however recorded improved operating performance as its operating margin of 18.5% bettered last year’s margin of 17.6% on account of lower power consumption and 4% decrease in fuel costs. The sponge iron division and the chemical division left their higher ranked peers behind as their operating margins (21% for chemical and 36% for sponge iron) improved substantially on the basis of higher price realizations.

The huge increase of 127% in the other income and an 11% reduction in interest outgo helped bolster the bottomline performance of the company. However, the tax outgo of Rs 500 m was substantially higher as compared to the corresponding period in the previous year. The depreciation of Rs 670 m was also marginally higher by 6.7%. As far as the future plans of the company are concerned, the company has planned a capital outlay of Rs 2.9 bn in the FY04 & FY05 for the cement division. The modernization of the cement plants and the de-bottlenecking is likely to raise the production capacity to 13.7 m tonnes.

At Rs 499, the stock is trading at a P/E multiple of 9x its annualised 1QFY04 earnings. The stock's performance in the recent past has been mainly led by the developments regarding acquisition of L&T's cement division. There has been a decision finally in this regard and Grasim is likely to acquire a controlling stake in the soon to be demerged cement company. Grasim is going to emerge as the largest cement producer in the country post this acquisition. Better economies of scale will be the most apparent benefit of this acquisition. However the full benefits of this acquisition will only occur in the long term. Grasim is likely to spend nearly Rs 21 bn on this deal.

The acquisition fits well in to Grasim's long-term vision of emerging as the biggest player in the domestic cement market. Thus in the long term, with strong prospects of the cement sector, Grasim stands to gain a lot. Its VSF business is seemingly witnessing a cyclical downturn and even in the long term this division is only going to remain a cash cow for the company. While Grasim has done well enough to increase the acceptability of VSF in the international markets, Grasim's fortunes in the long term will be governed to a large extent by its performance in the cement business.

Equitymaster requests your view! Post a comment on "Grasim Industries: Betting on cement". Click here!

  

More Views on News

GRASIM 2020-21 Annual Report Analysis (Annual Result Update)

Oct 20, 2021 | Updated on Oct 20, 2021

Here's an analysis of the annual report of GRASIM for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of GRASIM. Also includes updates on the valuation of GRASIM.

Grasim Results Review: Net Profit Beats Estimates as Revenues Rise 182% (Views On News)

Aug 16, 2021

Higher VSF exports help Grasim amid weak domestic demand.

GRASIM Announces Quarterly Results (4QFY21); Net Profit Up 12.4% (Quarterly Result Update)

Jul 8, 2021 | Updated on Jul 8, 2021

For the quarter ended March 2021, GRASIM has posted a net profit of Rs 25 bn (up 12.4% YoY). Sales on the other hand came in at Rs 244 bn (up 26.1% YoY). Read on for a complete analysis of GRASIM's quarterly results.

India's Top 5 Fastest Wealth Creators Will Surprise You (Views On News)

Dec 29, 2021

We take a look at top five stocks which turned out to be the fastest wealth creators over the past five years.

This Cement Stock Spurts After Radhakishan Damani Buys More Stake (Views On News)

Dec 23, 2021

Shares of this company rose as much as 9% yesterday as major investors increased their holdings.

More Views on News

Most Popular

10 Indian Companies with the Fastest Growth in Dividend Payouts... (Views On News)

Jan 10, 2022

These companies have been consistently paying higher dividends for several years.

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

These 5 Penny Stocks are Held by Rakesh Jhunjhunwala. Worth a Look? (Views On News)

Jan 18, 2022

Rakesh Jhunjhunwala is holding these penny stocks in his portfolio for several years now.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

GRASIM SHARE PRICE


Jan 21, 2022 (Close)

TRACK GRASIM

COMPARE GRASIM WITH

MARKET STATS