Grasim Q3 Results Preview: Net profit may rise 70% from last year; revenues 45%

Grasim

Grasim Industries Ltd, the flagship company of one of the oldest business houses of India, is scheduled to announce its results for the quarter ended December 2021 later in the day today.

Experts expect the company to register a 70 percent on-year growth in its standalone profit after tax (PAT), while the standalone revenues are likely to grow 45 percent year-on-year.

The Aditya Birla Group company had recorded a net profit of Rs 331 crore during the same period last year on standalone revenues of Rs 3,697 crore.

The profit during the previous quarter of current financial year came in at Rs 947 crore with revenues at Rs 4,933 crore.

Brokerage firm Motilal Oswal prefers Grasim Industries due to (1) improvement in VSF demand in domestic markets, (2) focus on backward integration which will help higher chlorine usage, (3) capacity expansion plans and (4) its foray into the paints business.

It expects the company’s revenues to grow 46 percent on-year and 9 percent on-quarter to Rs 5,385 crore.

“Realisation for VSF business may increase by 28 percent on-year, while for chemicals segment, the realisations are likely to increase by 61 percent YoY,” said the brokerage in its report.

The volumes in the VSF segment are likely to see an increase of 11 percent on-year, while the chemicals volume may grow 1 percent YoY.

Motilal Oswal expects the EBITDA (earnings before interest, tax, depreciation and amortisation) to grow 51 percent year-on-year to Rs 972 crore from Rs 645 crore during the same quarter a year ago. On a sequential basis, the growth in EBITDA is 21 percent.

EBITDA margin at 18.1 percent for the quarter are higher by 70 bps on-year and higher by 1.9 percent on-quarter.

“We expect an EBITDA/kg of Rs 32 for VSF compared to Rs 27 in Q3FY21 and expect chemical margin to improve by 6.2 percent YoY and 5.7 percent QoQ,” the brokerage said.

It pegs the profit at Rs 575 crore for the quarter, growing by 74 percent on year but declining by 39 percent compared to the previous quarter of current fiscal. The profit is down sequentially due to lower other income. A dividend income from Ultratech Cement was accounted for in the previous quarter.

The net margins at 10.7 percent for the quarter are seen improving by 180 bps compared to last year. Sequentially, however, the net margins may slump by 8.5 percent.

Brokerage firm Kotak Institutional Equities expects the revenues to grow by 45 percent on-year to Rs 5,349 crore. On a sequential basis, the revenues are seen growing 8 percent.

“We model an 8 percent YoY volume increase in VSF operations (-1 percent QoQ) to 164,000 tonnes and a 5 percent YoY volume increase in the chemical operations (+7 percent QoQ) to 270,900 tonnes on improved demand post easing of COVID-related restrictions, improved export demand and higher pre-festive spends,” Kotak said in its report.

EBITDA is likely to see an improvement of 46 percent on-year and 17.5 percent QoQ to Rs 942 crore. Consequently, EBITDA margins 17.6 percent are seen improving by 16 bps on year and by 136 bps compared to previous quarter.

The brokerage expect a decline in VSF operating margin due to higher costs while margins for the chemical business are expected to improve on higher prices and higher volumes.

According to its report, Kotak “estimate VSF EBITDA of Rs 510 crore (+6 percent YoY, -12 percent QoQ) on higher costs and chemicals EBITDA of Rs 390 crore (+121 percent YoY, +69 percent QoQ) due to higher realizations and higher volumes”.

PAT at Rs 558 crore for the quarter is a growth of 68.7 percent YoY but a decline of 41 percent quarter on quarter due to higher other income in the previous quarter.

Grasim Industries closed at Rs 1,710.15, down Rs 58.4 (-3.3 percent) from its previous close at the National Stock Exchange on February 11. It has generated returns of 38 percent in the past one year.