BackGrasim posts strong Q1 but textiles, caustic soda prices cloud outlook
Costs are likely to remain a concern as realizations are softening both in the VSF and caustic soda businesses
PremiumNEW DELHI : Grasim Industries Ltd, the Aditya Birla flagship company reported a better-than-expected performance for the June quarter, with its chlor-alkali and textiles businesses reporting the highest-ever quarterly earnings before interest, taxes, depreciation and amortization (Ebitda) figure.
Standalone net profit from core businesses at ₹809 crore grew 68% year-on-year (y-o-y), beating Bloomberg analysts’ estimates of ₹637 crore.
Global caustic soda prices averaged higher at $769/MT in Q1FY23 against $719/MT in Q4FY22, driven by factors such as supply chain disruption and higher energy prices. Domestic caustic soda prices were further supported by a weaker rupee and stable demand. Caustic soda sales at 278,000 tonnes in Q1FY23 grew 17% y-o-y and 2% sequentially with a utilization rate of 89%.
The chemical segment Ebitda rose 193% y-o-y and 62% sequentially to ₹890 crore despite weak chlorine demand. Though user industry segments such dyes and pigments contributed to a negative realization for chlorine, on the positive side the captive consumption of chlorine for value-added products increased during the quarter.
Indian demand for textiles remained strong during the quarter helping drive the viscose staple fibre (VSF) business sales volume of 197,000 tonnes up 10% sequentially and 76% y-o-y, with domestic sales contributions at 94%. The newly commissioned 600 tonne per day brownfield plant at Vilayat contributed 51,000 tonnes of sales volume during the quarter.
The VSF segment Ebitda at ₹500 crore improved 3% y-o-y but almost doubled sequentially. The sequential improvement in VSF Ebitda was helped by better realization and sales volumes, which offset the increase in input cost of sulphur, caustic soda, coal, and others.
The costs are likely to remain a concern as the realisations are also softening both in VSF and caustic soda businesses.
After peaking in June 2022, cotton prices have softened on fears of a global recession leading to demand slowdown. Even caustic soda prices started to soften towards the end of June and are currently at $650/MT.
Analysts at Motilal Oswal Financial Services post results said that the recent decline in VSF prices in China coupled with reduced orders by US and European retailers in anticipation of a demand slowdown can hurt the company’s near-term margins.
Caustic soda prices have declined in the global markets and hence, chemical segment margins may see some pressure going forward.
However, ongoing expansions both in VSF and chemicals are likely to lead to improved volumes. Analysts at MOFSL expect 11% volume compound annual growth rate in both VSF and caustic Soda over FY22-24.
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