Grasim Industries Q1 Preview: Paint losses, rising costs, mixed segment performance to hit profit

Even the most optimistic estimate sees Grasim Industries' net profit falling 35 percent on-year.

Grasim Industries is set to present its earnings report for the first fiscal quarter of FY25 on August 9. The flagship company of the Aditya Birla Group is expected to deliver a subpar performance in Q1FY25 despite a rise in volumes, primarily due to anticipated losses from its new paints division.

Increased costs in interest and depreciation are also likely to weigh heavily on profitability.

According to a Moneycontrol poll, Grasim Industries is expected to record a massive 58 percent year-on-year drop in net profit at Rs 146 crore compared to Rs 355 reported in the year-ago period.

Its revenue, however, is seen rising 22 percent YoY to Rs 7,613 crore from Rs 6,237 crore in the corresponding quarter of the previous fiscal.

Even the most optimistic estimate sees Grasim Industries' net profit falling 35 percent on-year, while the most pessimistic projection suggests that net profit might plummet over 80 percent YoY.

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What factors are driving the earnings?

Volume dynamics: Grasim's viscose staple fibre (VSF) segment may face a slight QoQ volume decrease due to continued weakness in the VFY segment, while the chemical segment is expected to see a QoQ volume increase driven by gradual improvements in domestic demand.

Operational efficiency in the VSF Segment: Despite some volume challenges, the VSF segment is expected to see an improvement in operating profit margins (OPM) due to better EBITDA per kilogram, which will support overall earnings.

Higher costs: Increased interest and depreciation expenses are likely to weigh heavily on the company's net earnings, with a significant YoY decline in adjusted profit expected as a result.

Improved realizations: Revenue growth in the VSF and chemical segments is expected to benefit from improved realizations, with VSF EBITDA projected to grow significantly YoY. This will partially offset weaker performance in other areas.

Challenges from new business: The new paints division is anticipated to generate losses, which will compress overall margins. The ongoing investments and initial operating losses in these new ventures will be a drag on profitability.

Mixed operational performance: While chemical segment volumes are expected to improve QoQ due to rising domestic demand, overall EBITDA margins are likely to decline due to increased costs in interest and depreciation, coupled with losses from new business segments.

What to look out for in the quarterly show?

Analysts will be keeping a close eye on the impact of improved VSF and chemical segment realizations on margins. They will also focus on how losses from the new paints division affect overall profitability.

They will also eye the management commentary on the trend in interest and depreciation costs, overall demand, and operational efficiency.

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