INDIA: Grasim Q4 net profit up, expect VSF demand to grow at 5-6%

Grasim Industries Limited, an Aditya Birla Group Company, announced excellent results for the 4th quarter ended 31st March 2011 with the highest-ever quarterly profit. The improved performance from VSF business whose quarterly sales were the highest during the year was a major driver. Cement business has also reported improved performance. 

The Board of Directors of Grasim has recommended a dividend of Rs. 20 per share. The total outflow on account of the dividend would be Rs. 197 crores (Including the corporate tax on dividend). 

The shortage of cotton continued to drive prices of all textile fibres, including VSF. High spot pulp prices also contributed to the rise. 

Production during the quarter stood at 82,932 tons with full capacity utilisation. Sales volume equalled the peak attained in the corresponding quarter. Revenue grew by 27% aided by better realisations. Input cost rose sharply with higher prices of pulp, caustic, sulphur and coal. 

The expansion projects at Vilayat, Gujarat (120,000 TPA) and Harihar, Karnataka (36,500 TPA) are on track. Both these projects are slated for commissioning in FY13. A total capex of Rs.2,450 crores has been slated for the VSF business comprising Rs.2,100 crores on expansion projects and Rs. 350 crores towards modernisation. 

The Company has, subject to regulatory approval(s), decided to acquire 1/3rd stake in Aditya Holding AB, Sweden, who acquired Domsjo Fabriker AB, Sweden, a leading manufacturer of specialty pulp at an enterprise value of Swedish Kroner (SEK) 2.12 Billion (approx.Rs.1,570 crores). This will entail an investment of SEK 380 Million (approx. Rs. 280 crores) and will be funded out of internal accruals. This will enable the Company to have an assured supply of pulp including for its aforesaid expansion projects. 

Global VSF demand is expected to grow at 5-6% in both the textiles and non-woven segments in the long term. 

However, profitability in the short term will be governed by the prices of competitive fibres, inputs and energy costs. Cotton production in the forthcoming season will be the key influencing factor. 

Chemical Business

The Chemical business achieved record sales volumes backed by capacity utilisation of 103% and good demand from the end user industries such as aluminium and paper. ECU realisations grew by 13% on a YoY basis. 

A 182,500 TPA Caustic plant and a 60 MW power plant at Vilayat, mainly for captive use, is on the anvil. This will entail an investment of Rs. 772 crores. 

The standalone performance for the quarter has been impressive. Revenues were higher by 28%. Net profit increased by 37%.

Outlook

Strong consumption as well as investment has supported India’s growth story over the last decade and will continue to do so in future. Grasim with its presence in VSF and cement will immensely benefit from both rising consumption as well as investment. Large capacity expansionsunder implementation in both VSF and Cement businesses will enable the Company to grow at a rapid pace and further consolidate its leadership.