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Informist, Monday, Nov. 11, 2024

By Anand J.C.

MUMBAI - Grasim Ltd. is expected to report a low double-digit on-year growth in its top line and bottom line in the September quarter, but losses from its new business including paints and the construction material e-commerce venture will drag down its overall margins, analysts said.

The standalone net profit of Grasim is expected to rise 11% on year to INR 8.83 billion in the latest quarter, according to an average of estimates from six brokerages. The company reported a net profit of INR 7.95 billion a year ago. Motilal Oswal Financial Services Ltd. said it sees Grasim's other income rising 65% on year in the September quarter, driven by higher dividend income from its cement subsidiary Ultratech Cement Ltd., pushing up the net profit. 

Grasim's net earnings from sales in the September quarter are expected to grow 17% on year to INR 75.39 billion, as per the average of estimates from six brokerages. Grasim reported a revenue of INR 64.42 billion in the same quarter last financial year. Among the brokerages, Kotak Institutional Equities Ltd. has the highest growth estimate for Grasim's top line at 21% on year, while Sharekhan Ltd. has the lowest at 15%. Kotak expects Grasim to report revenue of INR 77.83 billion in the September quarter.
 

Grasim's September quarter operating profit is seen declining on year because of higher losses in the new business including the Birla Opus paints business and Birla Pivot, the company's business-to-business e-commerce offering for construction materials. Grasim's earnings before interest, taxes, depreciation, and amortisation in the September quarter is expected to be INR 4.51 billion, as per an average of five brokerage estimates. While EBITDA is seen rising 8% sequentially, the consensus points to a 24% on-year decline. Antique Stock Broking Ltd. and Motilal Oswal forecast the highest on-year decline in EBITDA at 34% on year, while Kotak sees the lowest decline at 8%.

ICICI Securities Ltd. expects Grasim's EBITDA margin to decline 260 basis points year-on-year in the September quarter, while Motilal Oswal has forecast a 400 basis points drop from 9.2% in the September quarter last financial year. EBITDA margin of Grasim may recover 200 bps sequentially in the September quarter owing to a rise in global prices of viscose staple fibre, a core segment for the company.

Kotak sees Grasim's chemical segment EBITDA rising 30% on year. Motilal Oswal expects chemical segment volume to decline 7% on year with a 13% on-year increase in realisation. The brokerage expects Grasim's September quarter operating margin in the segment to be 15.2%, 330 bps higher on year.

Kotak expects the viscose staple fibre business' Jul-Sept EBITDA to be INR 5.1 billion, up 9% on year, on improving prices. The average price of viscose staple fibre was up 4% sequentially in the September quarter in China. Motilal Oswal expects viscose staple fibre volume to grow 3% on year in the September quarter, although realisation is seen declining 1% on year. "Realisations in viscose staple fibre segment are improving. In contrast, losses from the new business of paints and B2B shall hamper the overall margins of the company," Nuvama Institutional Equities said in a report.

Grasim forayed into the paints business in the March quarter. The company has guided for capital expenditure of INR 45 billion for the current financial year, out of which INR 29.8 billion is for the paints segment. Antique Stock Broking's channel checks suggest that the paints business could deliver a mid-single-digit organised market share in the latest quarter, higher than the low single-digit share in the June quarter. The company could achieve a high single-digit organised market share by the March quarter of the next financial year, the brokerage firm wrote in a report. Motilal Oswal expects expenditure towards interest and depreciation to increase by 39% and 23% on year respectively.

At 1443 IST, shares of Grasim were trading at INR 2,524.70 on the National Stock Exchange, down 0.8% from the previous close.

Following are the Jul-Sept consolidated earnings estimates of Grasim based on reports compiled by Informist from six brokerage houses:

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Edited by Saji George Titus

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