Mumbai: Grasim Industries Ltd, the cement, textile and chemicals company owned by the Aditya Birla Group (ABG) registered a smart rise in net profit on the back of a sharp growth in sales and lower costs but an executive highlighted the threat of over-capacity that faces cement makers.
Grasim saw a 61% rise in net profit to Rs674 crore in the July-September quarter compared with Rs419 crore in the same period last year.
Higher revenues from the company’s core businesses of cement and viscose staple fibre (VSF) helped. Adesh Gupta, whole time director and chief financial officer at Grasim said profit margins improved this quarter, but added that the rest of the year won’t be as good.
“In this quarter we saved costs and that helped in margins. But the rest of the year is going to be tough especially in cement because we are going to have excess cement supply,” he said.
Grasim earned Rs2,066 crore by selling cement in the quarter ended September, 30% higher than Rs1,593 crore earned in the same quarter last year, while the VSF business generated Rs849 crore of revenue 23% higher than Rs691 crore earned in the same period last year.
VSF is a man-made bio-degradable fibre with characteristics of cotton.
An analyst with a private brokerage who asked not to be identified said the profits were better than his expectations because of higher volumes from the VSF business.
“The net profit at Rs674 crore was higher than my expectations of Rs551 crore. Better VSF volumes and realizations have helped,” he said.
The VSF business will become the mainstay for Grasim after it merges its cement business with Ultratech Cement Ltd, another Aditya Birla Group company.
Grasim plans to invest Rs1,000 crore in a new VSF plant in Vilayat (Gujarat) which will enhance the company’s capacity to 413,975 tonnes. Shailendra Jain, wholetime director at Grasim said the company is investing in anticipation of growth in the textile business in China and India.
“China has been the driver of growth not only in VSF but in all textiles and in the next few years both India and China are going to be major suppliers. The government of India is also in the process of creating a new policy for the textile sector so there is a good opportunity.”
Jain said he expects the new plant to be ready by the end of 2012. Grasim has bought 500 acres of land in Gujarat for the project and has also got environment clearance for the same, he added.
The analyst with the private brokerage said signs of revival in the global textile market make VSF a good bet for the company. “Textiles as a sector is based on global economy. Recovery of global growth will improve demand in the sector and shortage of cotton could also help because VSF is essentially a substitute for cotton.”
Grasim shares fell 0.89% in Mumbai on Thursday.