Grasim Industries Limited, an Aditya Birla Group company, has announced its results for the third quarter ended December 31st 2009. Higher volumes and lower input prices have been the key growth drivers.
The company’s net revenue was higher by 5% at INR 4,844 crore. PBIDT was higher by 41% at INR 1,511 crore. Net profit at INR 715 crore was up by 56%, despite higher depreciation on account of the commissioning of new projects and a substantially higher tax provision.
On a standalone basis, Grasim's performance has been more impressive. Net revenue rose by 15% at INR 3,088 crore from INR 2,695 crore. PBIDT grew by 85% at INR 1,075 crore from INR 580 crore. Net profit increased by 81% at INR 596 crore from INR 330 crore, notwithstanding a steep rise in tax expenses and higher depreciation due to the commissioning of new projects.
The consolidated as well as the standalone results for the quarter are not strictly comparable with the results of the corresponding quarter. This is due to the sale of the sponge iron business on 22 May 2009 and the consolidation of Idea Cellular Limited as an associate from 1 January 2009, as against a JV earlier.
Consolidated financial performance
| Q3 '09 | Q3 '08 | Change | |
| Net revenue | 4,844 | 4,610 | 5.0% |
| PBIDT | 1,511 | 1,073 | 41.0% |
| Profit before taxes | 1,177 | 749 | 57.0% |
| Profit after taxes | 805 | 566 | 42.0% |
| Minority share | -90 | -106 | NA |
| Net profit (before extraordinary item) | 715 | 460 | 56.0% |
| Net profit (after extraordinary item) | 715 | 460 | 56.0% |
In INR crore
| 9M '09 | 9M '08 | Change | |
| Net revenue | 14,715 | 13,549 | 9.0% |
| PBIDT | 4,822 | 3,452 | 40.0% |
| Profit before taxes | 3,840 | 2,576 | 49.0% |
| Profit after taxes | 2,632 | 1,921 | 37.0% |
| Minority share | -392 | -303 | NA |
| Net profit (before extraordinary item) | 2,240 | 1,618 | 38.0% |
| Net profit (after extraordinary item) | 2,576 | 1,618 | 59.0% |
In INR crore
Highlights of Grasim's operations:
Cement business
The cement business posted a healthy growth, as demand continued to remain strong. New capacities contributed to a 13% increase in production, at 8.99 million tonnes. Sales volumes expanded by 14% at 9.21 million tonnes. Cement prices were impacted, particularly in the south, due to excess capacity and lower demand. The quarter also witnessed a drop in clinker export realization due to reduced off-take in the Middle East following a meltdown in construction activities. On a sequential basis, Ready Mix Concrete volumes improved marginally.
In white cement, sales volumes were up by 18%. Wallcare putty recorded a 38% growth in volumes. Higher volumes, coupled with lower energy prices and an enhanced share of captive thermal power, resulted in improved operating margins.
Cement CAPEX
The company commissioned a cement mill of 1.55 millions capacity at Kotputli (Rajasthan) in January 2010. The second cement mill of equivalent capacity is expected to be commissioned in February 2010. This would raise the combined cement capacity of the company to 48.8 million tonnes. A total capital outlay of INR 4,110 crore has been earmarked for the cement business (including an outlay of INR 2,040 crore for its subsidiary, UltraTech Cement Limited). The amount is proposed to be invested on grinding and evacuation facility, logistics infrastructure, waste heat recovery system, captive thermal power plant, modernization and completion of existing projects.
Cement outlook
Industry demand is likely to grow by over 10%, driven by the robust growth in the Indian economy and the government’s initiatives to boost rural development, infrastructure and housing. The industry is expected to witness a surplus scenario over the next 18 to 24 months which may put pressure on margins. The company’s focus on higher volume growth, together with cost efficiency, should help in mitigating the impact on margins to some extent.
The company would require an additional capacity of around 25 million tons over the next 5 years just to retain its market share. It plans to expand its capacity sizably, with a view to grow its market share.
Cement restructuring
The proposed de merger of the cement business of the company into Samruddhi Cement Limited, which will be effective from October 1st 2009, is progressing as scheduled. It is targeted to be completed by March 2010.
Meanwhile, the boards of directors of UltraTech and Samruddhi have decided to amalgamate Samruddhi with UltraTech under a Scheme of Amalgamation with effect from July 1st 2010. This Scheme too is in line as scheduled and is aimed to be completed by July 2010.
As the de merger is yet to become effective, pending sanction of the Hon'ble High Courts of Madhya Pradesh and Gujarat, no effect of the proposed de merger has been factored in the results. Had the Scheme been effective, the revenue and profit for the period would have stood as under:
Standalone
| Dec Qtr '09 | Published | Restarted |
| Revenue | 3,088 | 1,058 |
| Profit before interest and tax (PBIT) | 932 | 432 |
| Net profit before extraordinary item | 596 | 358 |
In INR crore
Consolidated
| Dec Qtr '09 | Published | Restarted |
| Revenue | 4,844 | 4,844 |
| Profit before interest and tax (PBIT) | 1,256 | 1,256 |
| Net profit before extraordinary item | 715 | 676 |
In INR crore
Outlook
Both the core businesses of the company have strong competitive advantages and have attained a global size. They now stand at the next phase of growth. With the current phase of restructuring, the stage for future growth has been set. The company will continue to make investments in these two businesses to enhance cost and volume leadership. On restructuring, while the cement business will be consolidated in a pure play company, Grasim at the consolidated level will continue to be a cement and VSF major.
