• OCTOBER 23, 2003

Grasim 2QFY04 PAT up 58% YoY

Grasim, the largest cement producer in the country, has reported a 6% growth in its topline for the September quarter, over the previous year. While the operating profits of the company have improved by 5%, the bottomline of the company has grown by nearly 58% on the back of improved operating performance and also a robust 82% increase in other income.

(Rs m)2QFY032QFY04Change1HFY031HFY04Change
Net Sales 11,129 11,772 5.8% 22,484 23,519 4.6%
Other Income 366 665 81.8% 459 876 90.8%
Expenditure 8,628 9,066 5.1% 17,529 18,131 3.4%
Operating Profit (EBDIT) 2,501 2,706 8.2% 4,955 5,388 8.7%
Operating Profit Margin (%)22.5%23.0%22.0%22.9%
Interest 432 403 -6.7% 874 794 -9.2%
Depreciation 628 684 8.9% 1,252 1,354 8.2%
Profit before Tax1,8082,28426.3%3,2884,11625.2%
Extraordinary items (16) 275 (33) 248
Tax (505) (530)5.0%915 1,030 12.6%
Profit after Tax/(Loss) 1,287 2,030 57.7% 2,340 3,334 42.5%
Net profit margin (%)11.6%17.2%10.4%14.2%
No. of Shares 91.7 91.7 91.7 91.7
Diluted Earnings per share*56.188.551.072.7
P/E Ratio 7.9 9.7
(* annualised)

Let us look at how the major divisions of the company performed during 2QFY04.

VSF: Although the VSF division of the company registered a decline in sales of about 9%, higher realisations and cost optimization measures helped the company to offset decline in volumes. The division operated at 110% capacity, up from 107% a year ago. The company is trying hard to develop novel applications for VSF and it has set up R&D facilities for the same

Cement 8%-4%
Sponge iron-3%36%
Caustic soda6%14%

Cement: The cement division of the company also saw an increase in sales volumes, which improved by 8% YoY. The realisations however suffered on account of the companyís presence in regions of high demand supply mismatch and fell by 4%. Going forward, we expect the cement division to be the growth driver for the company mainly on account of two reasons. First, the industry is growing at a healthy rate of 8-9% and the secondly, the company will also benefit from the economies of scale and improved realisations as a result of the acquisition of L&Tís cement division.

Sponge Iron: Riding on the back of improvement in scrap prices globally, the sponge iron division of the company registered an impressive 36% improvement in realisations in 2QFY04 as compared to the previous year. However, the volumes of the company registered a drop of around 3% on account of lower capacity utilisation of around 64% as compared to 70% in the corresponding period of previous year. The outlook for the division looks bright on account of increase in demand in both domestic and international markets. However, the low availability of natural gas and its pricing remains a cause of concern for the company.

Chemicals: The chemicals division of the company saw both sales volumes as well as realisations improve in 2QFY04. While the volumes of the company improved by around 6%, the realisations registered a rise of around 14%.

Operating expenses2QFY032QFY04Change
Raw materials 2,783 2,907 4%
% of sales25.0%24.7%
Employee 788 851 8%
% of sales7.1%7.2%
Power 2,099 2,207 5%
% of sales18.9%18.8%
Freight 1,188 1,209 2%
% of sales10.7%10.3%
Finished goods 21 144 580%
% of sales0.2%1.2%
Other costs 1,749 1,749 0%
% of sales15.7%14.9%
Total 8,628 9,066 5%

The stock is trading at Rs 700, implying a P/E of 9.7x its annualised 1HFY04 earnings. We will put up a more detailed review of the performance post the companyís analyst meet.

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