Grasim slips into red in Q1, posts Rs 52-crore loss due to paints investment, weak fibre demand

Grasim attributed the lower EBITDA to planned investments in the paints business, under the Birla Opus brand, which is undergoing a phased launch throughout the country, and has been earmarked for a total investment of Rs 10,000 crore for manufacturing plants, marketing channels, and other expenses.

The company's EBITDA margin on a standalone basis for the quarter was reported at 6 percent, against 12 percent in the year-ago period.

Paints business

For the fledgling Birla Opus-branded paints business, the company said that the ramp-up of operations at its three inaugurated plants - Panipat, Ludhiana, and Cheyyar - commenced from April, while trial production at its fourth plant, located at Chamarajanagar in Karnataka, also started during the quarter. Grasim's investor presentation for the quarter said that construction at the other two plants, at Kharagpur in West Bengal, and in Maharashtra's Mahad, is progressing according to schedule.

Till June 30, Grasim spent Rs 7,795 crore on the paints business by way of capital expenditure. Of the Rs 983 crore that Grasim spent as capital expenditure for Q1, Rs 731 crore was spent for building up Birla Opus.

Grasim has outlined a plan to challenge for the leadership in the paints business, which is currently dominated by Asian Paints and Berger Paints.

Cellulosic fibre & yarn

The company also reported some weakness in its core cellulosic fibre and yarn businesses, with weak demand in downstream channels, as well as predatorily-priced imports from China impacting margins and realisations, even as volumes showed strength.

Sales in the cellulosic staple fibre segment grew by 14 percent year-on-year in volume terms to 212,000 tonne, while volumes in the cellulosic fashion yarn segment for the quarter were largely flat on an annual basis at 9,500 tonne, due to low demand and cheaper Chinese imports.

Revenue for the cellulosic segment, comprising both cellulosic staple fibre and cellulosic fashion yarn, grew six percent year-on-year to Rs 3,787 crore, while segmental EBITDA also grew slightly on an annual basis to Rs 405 crore.

Mixed picture in chemicals

Grasim reported a mixed picture regarding its chemicals business, comprising primarily of its chlorine derivatives, caustic soda, and specialty chemicals, such as epoxy polymers, business.

The company reported segmental revenue of Rs 2,066 crore, lower than the Rs 2,146 crore reported in the year-ago period, while the EBITDA for the business was Rs 310 crore for Q1, lower than the Rs 358 crore reported in the same quarter last year.

A marginal improvement in global caustic soda prices has provided hope to players in the sector, with the government in China, a major consumer, trying to improve domestic consumption. In India, however, Grasim noted that the market remains oversupplied, dragging prices lower. Grasim's caustic soda volumes were lower both annually and sequentially to 282,000 tonne, on account of a shutdown at one of the company's manufacturing plants.

Volumes in the specialty chemicals vertical grew 24 percent during the quarter year-on-year, Grasim said. In a post-earnings call, the company's management said that there are tailwinds in every sector that consumes epoxy products.

Consolidated results

On a consolidated basis, Grasim reported a revenue of Rs 33,861 crore, higher year-on-year by around nine percent, while its net profit was Rs 1,189 crore, lower by 25 percent over the same period last year. EBITDA was reported at Rs 4,760 crore, representing a 4 percent decline year-on-year, while the EBITDA margin was 14 percent, 200 basis points lower than that of the year-ago period.

Grasim holds a 57 percent stake in UltraTech Cement, India's largest cement manufacturer, which declared its financial results last month.

On August 9, the Aditya Birla Group company's shares on National Stock Exchange closed 1.2 percent higher at Rs 2,575 apiece.