One would have expected Grasim Industries Ltdto put up a dismal show in the September quarter, as about three-fourths of its consolidated revenue accrues from the cement business, where the going has been tough.
Fortunately for the company, robust growth in its viscose staple fibre (VSF) and chemicals businesses shored up its consolidated sales growth, while better margins in the cement business contributed towards its profitability.
Grasim’s stand-alone revenue gained 29% from a year earlier. This was a combination of the strong growth in volumes and prices of both VSF and chemicals. Average realizations of VSF improved by 7%, while that of chemicals, although comprising a smaller portion of the stand-alone revenue, jumped 44% from a year earlier. Although VSF prices fell during the quarter, they were higher by 27% from a year earlier.
A file photo of labourers loading cement bags on trucks at a goods railway station in New Delhi
Yet, strong realizations could not cover spiralling costs of pulp, coal and energy, which hit profitability. Stand-alone operating margin, therefore, narrowed by nearly 4 percentage points from a year ago. Net profit rose by around 23.3% to Rs 344.8 crore.
At the consolidated level, revenue expanded 27% to Rs 5,649.2 crore from a year earlier. This includes the performance of its cement subsidiary, UltraTech Cement Ltd, in which Grasim holds a 60.3% stake.
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UltraTech’s earnings, which were announced last week, indicate a paltry 1.1% year-on-year growth in cement and clinker sales volume. A low base effect helped post a strong 20.3% growth in average realizations. Also, cost pressures by way of fuel, power and freight have been plaguing the cement sector in the past four quarters.
Given UltraTech’s minimal exposure to the southern region, it is better off than some peers, and could see improved realizations and volumes after December.
Grasim’s consolidated operating profit expanded by around 25.2% from a year earlier, although margins were lower slightly by 26 basis points. Net profit at the consolidated level rose by 29% to Rs 417.9 crore, which was better than expected.
But Grasim’s diversification within commodities has helped hedge profitability. Going forward, however, analysts expect improved cement prices and stable demand for VSF. These factors have prompted some brokerages to revise its fiscal 2013 earnings estimates up by around 7%. Little wonder, the stock jumped 3.1% on BSE on Monday to Rs 2,362.30.
Any improvement in VSF or cement volumes and prices could be near-term triggers for the stock from these levels.