Key highlights from Grasim Industries Limited (GRASIM) Q2 FY24 Earnings Concall
- Financial Performance
- Consolidated revenue grew 10% YoY to INR 30,221 crore, EBITDA grew 14% YoY to INR 4,509 crore.
- Growth driven by cement and financial services businesses.
- Standalone revenue de-grew 4% YoY to INR 6,442 crore, EBITDA de-grew 21% YoY to INR 1,354 crore.
- Sales volumes grew in viscose and caustic soda but realizations impacted by global price decline.
- Capex and Business Updates
- Implementing highest ever capex plan, Board approved INR 4,000 crore rights issue to fund capex.
- Epoxy capacity expansion under commissioning, expected operational in Q3.
- Received consent to operate for 3 paints plants – Panipat, Ludhiana, Cheyyar.
- B2B ecommerce platform Birla Pivot crossed INR 100 cr revenue milestone.
- Launched private label tiles on Birla Pivot.
- VSF Business Performance and Outlook
- Margins recovered on QoQ basis despite fall in realizations.
- Margin improvement in Q2 due to higher volumes giving operational leverage and lower input costs.
- International VSF prices remained under pressure in Q2 and currently.
- Margins expected to remain volatile given commodity price volatility.
- Historical 20-year average EBITDA per kg for VSF is INR 25-26.
- Company remains optimistic on achieving historical profitability levels over long term.
- New Businesses Losses
- Higher losses in Q2 vs previous quarters from new businesses like B2B and paints.
- Majority of losses from paints business as large teams hired and costs not capitalized.
- Losses expected to continue in near term as businesses scale up.
- Capital Allocation Strategy
- Investing in core viscose and chemicals businesses with recent capacity expansions.
- Large capex of INR 10,000 crores for paints business over current and next year.
- No major capex for B2B ecommerce business, exploring private labels with contracted manufacturing.
- Expects valuation gap to reduce as standalone business share in consolidated financials increases.
- VFY Business Performance
- Anti-dumping duty on VFY from China only at recommendation stage, not approved yet.
- Chinese VFY exports rising amid low domestic demand putting price pressure.
- India textile demand during festive season lower than anticipated.
- Lower demand in India and China weighing on VFY prices.
- Chemicals Business
- Power costs were favorable for chemicals business in Q2.
- Weak demand environment for key chlor-alkali derivatives like textiles and agrochemicals.
- One-time higher maintenance costs in chlorine derivative plants impacted costs.
- Specialty chemicals (epoxy) volume grew 25% YoY, profitability grew in line with volume.
- Ongoing investments in chlorine derivatives like ECH project.
- No plans for polyvinyl chloride; tie up with Lubrizol for CPVC.
- Forward integration into pipes not explored yet.
- Caustic Soda Demand Outlook
- Key caustic end market textiles facing weak demand both in viscose and cotton.
- Caustic also impacted by weak global demand environment.
- Spread across different geographies provides some demand cushion vs local players.
- Demand outlook depends on recovery in key derivatives like textiles, agrochemicals etc.
- Paints Business Update
- 3 plants at Ludhiana, Panipat, Cheyyar received CTO, to be operational in Q4 .
- Decorative paints launch also planned in Q4 Jan-Mar 2023.
- PaintCraft test launch feedback satisfactory but using external products.
- Renewables Business
- Implementing 1 GW renewable projects, to be commissioned in Q1 FY24.
- Capex funding through 20-25% equity, rest debt varying by project.
- Capital employed increasing reflecting project capex.
- VSF Capacity Expansion
- Currently operating near full utilization levels.
- Scope to increase production from existing plants through debottlenecking.
- No significant new investment planned for capacity expansion.
- Looking at operational improvements to maximize existing capacity.