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Informist, Wednesday, Feb. 5, 2025

 

By Rajesh Gajra

 

NEW DELHI – Aditya Birla group's flagship company, Grasim Industries Ltd., may report a loss for the December quarter due to pressure on profitability and margins from operating losses in its paints and business-to-business e-commerce businesses. The company's bottom line may also come under pressure from elevated or rising prices of key raw materials for its cellulosic fibre segment, such as dissolving grade pulp, caustic, and sulphur.

 

The standalone net loss expected by analysts will be against a net profit reported in the previous and the year-ago quarters. The standalone top line of the company is likely to show better on-year growth on the back of contribution from the paints and business-to-business e-commerce. But sequentially, revenue growth in the December quarter may lag the high growth in the previous quarter on account of a likely slowdown in demand, or weak realisations, in varying degrees across all its four key segments.

 

As per the average of the estimates of four brokerage firms -- Kotak Institutional Equities, Nuvama Wealth Management Ltd., Sharekhan Ltd. and Motilal Oswal Financial Services Ltd. -- Grasim is likely to report a standalone net loss of INR 42 million for the Oct-Dec period, against a net profit of INR 2.36 billion during the corresponding quarter last year and a net profit of INR 7.21 billion in the Jul-Sep quarter. Revenue from operations is seen at INR 81.72 billion, up 28% on year and 7% sequentially.

 

To be sure, Grasim reported an 18% on-year rise in its revenue from operations in the Jul-Sep quarter at INR 76.23 billion. Sequentially, revenue for the September quarter grew 11%. At the same time, Grasim's net profit for the September quarter was INR 7.21 billion, against INR 7.95 billion in the Oct-Dec quarter a year ago and a net loss of INR 521 million in the June quarter this financial year. The company's stock price is nearly unchanged when compared with its closing price of INR 2,502.90, hit on Nov. 13, a day before it announced the September quarter results.

 

While Nuvama Wealth Management has the highest net profit estimate of INR 665 million, Kotak Institutional Equities has estimated Grasim to report a net loss of INR 916 million for the December quarter. Meanwhile, Nuvama set the lowest revenue estimate of INR 78.84 billion and Kotak's estimate was INR 83.30 billion, the highest amongst the four brokerages.

 

Kotak expects Grasim's cellulosic fibre segment to decline 3.3% in volume during the December quarter, due to continued weakness in the viscose filament yarn segment, but sees stable volumes in chemical operations sequentially, mainly aided by "gradual domestic demand improvement." On the other hand, Motilal Oswal Financial Services said in a preview note that it expects Grasim's revenue to increase 30%, aided by contributions from high-growth paints businesses and B2B e-commerce.

 

Losses from the company's new business lines of paints and B2B e-commerce will drag operating profit and margin lower, according to Kotak, Sharekhan, and Nuvama. Grasim's management had admitted that the paints market "seems to be having a slowdown", in an earnings conference call after its September quarter results. The management also said that it was offering 10% extra quantity for purchases of paints above a certain quantity, to attract volume.

 

Sharekhan, Kotak and Nuvama expect Grasim's earnings before interest, tax, depreciation and amortisation, or EBITDA for the December quarter to be between INR 3.36 and INR 5.63 billion. The lower and the upper end of the range stand substantially lower than the EBITDA of INR 16.19 billion Grasim had reported in the June quarter. It is also below the year-ago EBITDA of INR 6.43 billion.

 

The bottom line of Grasim is likely to be negatively affected by losses in the paints business. Motilal Oswal expects Grasim's depreciation and interest costs to each jump 41% on year, which is likely to pull down the profit after tax 99% on year to INR 14 million.

 

As the company is slated to release its financial results for the December quarter Monday, investors and analysts will be scanning for revenue and profitability numbers for the paints business, which the company has not revealed in its quarterly results so far. The market players will also wait for management commentary on the demand outlook and input cost trajectory for the two mainstay segments of cellulosic fibre and chemicals.

 

Shares of Grasim ended Wednesday at INR 2,490 on the National Stock Exchange, up 0.2%.

 

Following are the Oct-Dec standalone earnings estimates for Grasim Industries based on reports from four brokerage firms in descending order of net profit estimates:

 

Brokerage firm	Net sales	Net profit	EBITDA
	(In INR million)
Nuvama Wealth Management Ltd.	78,838	665	5,630
Sharekhan Ltd.	81,730	70
Motilal Oswal Financial Services Ltd.	83,003	14	4,648
Kotak Institutional Equities	83,303	-916	3,363
Average	81,719	-42	4,547

 

End

Edited by Nishant Maher

 

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