Grasim Industries Ltd on February 14 reported a 47 percent on-year decline in its standalone profit for the third quarter ended December 2022 (Q3FY23) at Rs 257 crore, compared to a profit of Rs 489 crore registered in the year-ago period.
The number missed the street's expectations despite a favourable tax expense as the company decided to opt for a lower tax regime from the financial year 2022-23 in terms of the provision of Section 115BAA of Income-tax Act, 1961.
On a sequential basis, the profit tanked 73 percent, compared to a profit of Rs 964 crore recorded during the quarter ended September 30, 2022.
Standalone revenue for the Aditya Birla Group flagship rose 7 percent to Rs 6,196 crore as against a revenue of Rs 5,785 crore recorded in the year-ago period. On a sequential basis, the revenue is down 8 percent from Rs 6,745 crore it earned during the preceding quarter.
“The Company reported stable financial performance over 9MFY23 despite multiple headwinds and recessionary fears globally”, the company said in its earnings release. “While domestic consumption remained healthy, global macroeconomic conditions impacted export-related demand and operational profitability for the quarter was adversely affected by elevated input prices”.
The revenue growth was aided by growth in its chemicals and other businesses which witnessed a year-on-year growth of 10 percent and 18 percent, respectively. Its main business of viscose fibre and yarn; however, had a muted quarter with its revenue declining by 5 percent compared to the same period last year.
The chemicals business comprises Chlor Alkali, Specialty Chemicals and Chlorine Derivatives while the others business verticals represent mainly Textiles, Insulators, Paints and B2B E-Commerce.
On a sequential basis, the revenue for all three business verticals was down with the Viscose fibre and yarn business witnessing the maximum sequential decline of 18 percent, followed by the Others business vertical which was down 8 percent and the revenue for the chemicals division slid 5 percent compared to the previous quarter.
Viscose Staple Fibre (VSF) value chain partners witnessed a prolonged global demand slowdown on the back of geo-political instability, recessionary fears and consequential consumption slowdown. Thus, exports-led demand from the value chain partners was impacted and ripples were felt across the Indian textiles market.
The global demand slowdown and resilient demand conditions in India led to increased exports from Indonesia to India at lower prices, the company said in its earnings release. Further, zero import duty in India on these imports created pressure on domestic prices. At the same time, input prices continued to remain at elevated levels.
The chemicals business returned a strong performance despite the normalisation of realisations and a slight tapering in demand on a sequential basis due to softness in sectors like textiles, pharma and others.
Chlorine Integration increased to 60 percent this quarter compared to 56 percent in Q3FY22, supported by the new Chloromethane (CMS) facility commissioned in Q3FY22.
At the same time, the increase in operating costs for its Viscose business was more pronounced than the other two verticals which resulted in the overall operating margins tanking by 814 basis points on-year to 8.05 percent. Compared to the September quarter, the operating margins took a hit of 638 basis points.
The power and fuel cost during the quarter surged 180 basis points on-year and 202 basis points QoQ while the other expenses jumped 268 basis points YoY and 262 basis points compared to the previous quarter. This increase severely impacted the performance and margins for the quarter.
Update on Paints and B2B E-Commerce business
As per the company release, the construction progress remains on track across all six plant locations. The state-of-the-art R&D facility has been commissioned. It is now working on developing innovative products for unique customer experiences. The commercial launch is scheduled for Q4FY24, as per plan.
In the B2B E-commerce business, most of the senior leadership team has joined and hiring for the next level is in process. Shortlisting of partners (sourcing, logistics, vendors, etc.) is near completion and while the pilot operations have started from January 2023 the full-scale launch will commence from H1FY24.
Capex Plans
The company in its release provided an update on its capex plans and updated that the total capex spent towards Paints Business till December 31, 2022, stood at Rs 1,817 crore. (~18 percent of the total planned outlay for the Paints business).
The total Capex for all other businesses was Rs 1,370 core in the first nine months of the current fiscal as against a budget of Rs 3,498 crore for FY23. The Board has also approved an investment of Rs 363 crore for Chlorine derivatives projects in the Chemicals business.
Grasim closed Rs 17.6 lower from its previous close at Rs 1,604.7 on February 14 on the National Stock Exchange. The stock has declined 2.3 percent over the past one year and has slipped 3.0 percent over the past one month.
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