Categories Analysis, Earnings

Grasim Industries: Approval of Additional Capex of ₹565 Crore & Other Major Updates

Grasim Industries Limited (NSE: GRASIM) is a well-known diversified player with a strong presence in a variety of industries. It is the largest manufacturer of advanced materials, linen yarn, and fabrics in India as well as a major producer of viscose staple fibre and viscose filament yarn on a global scale. The company has established six plants across India as part of its entry into the paints industry. It is also India’s largest cement producer through its subsidiaries, UltraTech Cement and Aditya Birla Capital, and a top provider of diversified financial services. The company also ranks among the top four insulator manufacturers worldwide.

Grasim’s Financial Performance For Q2

Grasim Industries Limited reported Revenue from Operations of ₹27,485.54 Crore up from ₹22,567.48 Crore year on year, a growth of 21.7%. The Revenue was driven by robust performance by subsidiary companies Aditya Birla Capital and UltraTech Cement. EBITDA margin is 13.7%, contracted by almost 520 basis point year on year mainly due to cost pressure at UltraTech Cement. Consolidated Net Profit of ₹1,509.19 Crore, down by 34.6% from ₹2032.4 Crore in the same quarter of the previous year. The Earnings per Share is ₹15.35 for this quarter.

Updates In Paints & B2B Ecommerce Project

Grasim is entering the Paints and B2B ecommerce industries, both of which are experiencing rapid growth. The company is on track to commission our first paint plant by Q4 FY24 and the remaining plants by FY25 in a phased manner. The first plant will have a production capacity of 200 to 220 million litres per year, whereas the combined annual production capacity of all plants is 1.3 billion millilitres. The total capital expenditures for this project up to September 30, 22 were ₹1,263 billion, or roughly 13% of the overall project cost.

The B2B ecommerce business is progressing as planned, and the MVP-1 will be commercially released by Q2 FY24. The platform will cover the following product categories: tiles, sanitary ware, steel, doors, windows, kitchens, electrical, paints, and cement. The leadership team will likely be in place by the Q4 of this year. Additionally, the technology partners for the platform’s technology requirements are also being finalized.

Grasim’s Capex Plan in Chemical Business, VFS & Other Businesses

The management had allocated a ₹3,498 crore capex for the company’s various businesses in FY23. The majority of the funds will go toward the Viscose Staple Fibre (VSF) business, which will spend ₹844 million on modernization and maintenance and ₹680 million on capacity expansion. A total of ₹1523 crore has been allocated to the chemical business, with the remaining portion allocated to other businesses.

A further ₹565 crore in Capex has been approved by the board, of which approximately ₹382 crore is expected to be spent in the current fiscal year, with the remaining amount being carried over to the following year. The extra Capex will be used for two major projects. The first project involves debottlenecking and expanding the chlorine VAPs in our Harihar pulp plant, which will increase its capacity from 210 TPD to 260 TPD and turn it into a fully integrated VSF plant. Debottlenecking will only slightly raise pulp integration by 2%, bringing it to about 37%. In the second project, the company is buying a sizable plot of land in Vilayat for the expansion of value-added chemical products. Since Vilayat land is currently almost entirely used, the plans for the VAPs business should require the new land parcel.

Global Headwinds in VSF Business

The VSF business reported revenue of ₹3,241 crore and EBITDA which declined by 59% down to ₹212 crore year on year. The decrease in EBITDA is primarily the result of lower demand brought on by the stagnation market conditions in developed economies due to the inflationary recession. The EBITDA was also impacted by the VSF sales volume which dropped by 14% on QoQ basis due to demand slowdown and cheaper imports from Indonesia and China. Additionally, higher prices for important raw materials like coal, caustic soda, and pulp also contributed to this decline. The high cost of caustic soda is offset by the higher profit of the chemical business of the company.

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