Sunday, October 28, 2007

Grasim, The Aditya Birla Group’s Flagship Company Performance for Q2FY 2008

Grasim, the flagship Company of the Aditya Birla Group, has posted good results for the 2nd quarter ended 30th September, 2007. Cement and Viscose Staple Fibre (VSF), its core businesses, have been the growth drivers. The Chemical and Sponge Iron businesses have contributed as well. Ongoing modernization efforts, upgradation of plants and energy optimization have been instrumental to the growth process.

The Company has reported a growth on all the fronts, viz., Revenue, Gross Profit and Net Profit. Revenue was up by 25% at Rs.3,973 crores (Rs.3,186 crores). Gross Profit at Rs.1,213 crores (Rs.839 crores) rose by 44% over the corresponding period. Despite a substantially higher provision for tax expenses, Net Profit grew by 50% at Rs.620 crores (Rs.414 crores).

Viscose Staple Fibre (VSF) Business

The upsurge in global demand coupled with the higher demand for knitted fabrics and increased realisations saw the VSF business post a good performance. Production was up by 7% at 69,678 tons. Sales volumes improved by 11% at 70,183 tons, a historical high for any quarter. The uptrend in international prices backed by a strong demand, resulted in realisations being higher. Increased use of captive pulp and a stronger rupee contained the impact of the steep increase in global pulp prices.

The Company plans to augment its capacity by 94,875 tons from its current level of 270,100 tons, through capacity expansions of 63,875 tons at Kharach (Gujarat) and 31,000 tons at Harihar (Karnataka).

Additionally, plans are afoot to set up a greenfield plant of 88,000 tons at Vilayat (Gujarat) at an estimated capital cost of Rs.840 crores. The plant would take 2-3 years to come up.

The outlook for the VSF business continues to be good.

Chemical Plant

The Chemical plant put in a better performance during the quarter, Production of caustic soda, which was impacted during the corresponding quarter on account of the shut down of a captive power plant, was higher at 48,752 tons. Sales volumes too were higher at 49,634 tons. Realisations dipped by 8% consequent to the reduction in prices of caustic soda and allied products.

Realisations are expected to remain depressed, given the demand-supply mismatch arising out of new capacity additions.

Cement Business

The Cement business’ performance has been good. While Production recorded a growth of 9% at 3.62 million tons, Sales volumes grew by 6% at 3.60 million tons. The share of blended cement increased from 63% to 68%. Costs remained under pressure due to the steep rise in fuel costs and increased freight rates.

The White Cement unit reported a satisfactory performance. Sales volumes were higher by 3% at 92,566 tons.

Cement Subsidiaries

UltraTech Cement Limited (UltraTech), a subsidiary of Grasim, too bettered its performance. Sales of cement and clinker were at 3.35 million tons and 0.26 million tons respectively. Net Profit was higher at Rs.184 crores.

Shree Digvijay Cement Company Limited, yet another subsidiary, reported a profit of Rs.1.50 crores, vis-à-vis Rs.8.03 crores in the corresponding quarter.

Cement Capex plan

The Company is expanding its capacity by 10.2 million tons at a total cost of Rs.3,480 crores. To this end, the Company is setting up –

-- a Greenfield cement plant at Kotputli in Rajasthan (with a split grinding unit at Panipat in Haryana), of a total capacity of 4.5 million tons;

-- a new plant at Shambhupura in Rajasthan (with a split grinding unit at Aligarh in Uttar Pradesh) of a total capacity of 4.4 million tons; and

-- a grinding unit at Dadri of a capacity of 1.3 million tons.

All these projects are progressing as per schedule. The Shambhupura plant is expected to be commissioned by end-FY08 and the Kotputli plant in Q1FY09.

This will enable the Company to cater to the growing demand for Cement in the northern region. The capex plans of UltraTech too are in line with expectations. Both the Company and its subsidiary are setting up Ready Mix Concrete plants at various locations in the country. The Company’s aggregate cement capacity (including that of its subsidiaries), upon completion of expansion, will stand augmented by 17 million tons at 48 million tons.

The additional capacity of around 90 million tons, as announced by the industry, could result in a surplus scenario due to which realisations could be under pressure from end-FY09. However, the growth in demand bodes well for the Company’s Cement business.

Sponge Iron Business

The Sponge Iron business enhanced its performance during the quarter. Production grew by 29% at 146,673 tons, due to usage of alternate fuels. Sales volumes too rose by 28% at 141,960 tons. While realisation improved, its impact was partially offset by higher feedstock cost. The prospects for the business are expected to improve in the long term with adequate gas availability, likely by end-FY08. The pricing of gas, which is uncertain, will continue to be a concern.


Grasim’s strong fundamentals, its unrelenting focus on operational excellence, cost optimization, effective financial management, continuous restructuring of business processes, together with its leadership position in the Cement and VSF sectors, augur well for the Company. The prospects for Grasim continue to be bright.

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