Grasim Industries Q2: Stellar earnings; completion of AB Nuvo merger key
Grasim Industries posted decent September quarter earnings with both profit and sales beating expectations. Consolidated net profit rose 50.4% to Rs.845.96 crore and consolidated net sales increased 2.7% to Rs9261.78 crore, year-on-year (YoY). The rise in profit was led by better operational performance and lower interest cost.
A Bloomberg poll had estimated consolidated net profit and net sales of Rs821.10 crore and Rs9,136.70 crore, respectively. In a post earnings conference call, its management clarified that a spike in standalone ‘other income’ was partly on account of Rs68 crore interest received. A one-off item and adjustment made due to change in accounting standards also led to some uptick.
Rewarded for its performance, Grasim shares surged more than 1.5% on Friday.
Meanwhile, Q2FY17 earnings were driven by good performance from all businesses, the company said. Viscose staple fibre (VSF) business volumes rose 9% YoY led by 19% growth in domestic markets. While short term variations are likely in utilisation level and pricing in this business, the long-term outlook is expected to remain stable, says the management. YoY improvement in VSF realizations also aided Grasim’s consolidated topline.
Sales volume at the chemicals business rose 8% YoY, buoyed by additional volume from the Ganjam plant acquired in September 2015.
As far as the cement business is concerned, the company owns 60.25% stake in UltraTech Cement, whose volume growth was subdued in the September quarter but profitability improved, That is reflected in Grasim’s consolidated numbers. While a good monsoon and development of smart cities augurs well for the cement industry, delay in execution of government projects, surplus inventory in urban real estate and increase in fuel prices are concern areas.
Trading at a one-year forward price-to earnings ratio of 14.13 times, Grasim Industries would be on the radar for merger of Aditya Birla Nuvo with itself. The transaction is expected to be completed by Q4 FY17—Q1 FY18 and a successful integration could be a trigger for the stock’s valuations.