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Informist, Tuesday, Feb. 11, 2025

 

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--Grasim: 2025 to see higher global geopolitical tensions, protectionism
--CONTEXT: Comments by Grasim management in post-earnings investor call
--Grasim: Oct-Dec EBIDTA dn amid high investments in growing paints business
--Grasim: Oct-Dec B2B e-commerce segment revenue higher on quarter
--Grasim: Oct-Dec chemicals segment EBITDA up on higher caustic soda prices
--Grasim:Price of key raw material viscose staple fibre up over 10% Oct-Dec
--Grasim: Guided for 3-year period for breakeven in paints business
--Grasim: Operating loss in paints segment exactly as planned, to continue
--Grasim: Outreach of paints segment nearly equal in all 4 regions in India
--Grasim: Response to our paints products uniform across all town segments
--Grasim: See paints segment's mkt share in high single-digits by FY25 end
--Grasim: Saw slowdown in paints industry in Oct-Dec, volumes flat or lower
--Grasim: Hard to say if paints industry sales picked up in January
--Grasim: Paint sales aided more by retail sector than on projects side

 

By Rajesh Gajra

 

NEW DELHI – Grasim Industries Ltd.'s operating profit, or earnings before interest, tax, depreciation, and amortisation, fell in the December quarter primarily due to initial investments in building the paints business under the brand name 'Birla Opus', the company's management said in a post-earnings conference call with investors and analysts Tuesday. Grasim's standalone EBITDA fell sharply by nearly 58% on year to INR 3.72 billion in the December quarter, with the EBITDA margin contracting significantly to 5% from 10% a year ago.

 

To an analyst's question on whether the operating losses in the paints business would increase going forward, the management said the operating losses "are exactly as we had planned on". According to the management, the company had earlier presented a game plan for the paints segment, where it said that within three years of full-scale operations in the paints business, the company would "want to break even". The company will, therefore, continue investing in the Birla Opus brand.

 

The management said it was quite confident that by the end of the current financial year, the company's market share in the domestic paints business would be in high single digit. The current financial year is the first year when Grasim has commissioned a few paint factories for commercial production and started selling paints across its distribution channel and dealers network in the country.

 

The company has not yet begun disclosing the revenue and EBITDA numbers for the paints business, on which it incurred capital expenditure of INR 90.15 billion till Dec 31. Currently, the paints segment accounts for most of the company's capital expenditure. Of the INR 46.91-billion capex planned for FY25, INR 29.76 billion is towards the paints business, according to data from the company's investor presentation. In Apr-Dec, the company incurred capex of INR 19.52 billion.

 

According to the management, the journey in the paints segment is a long one. So far, the company has been able to gain market share in every quarter, and in FY26, "we see a lot of opportunities for us to continue on the same track". Expenses will continue to be high for Grasim in the paints business, as the management said it would try "to get more dealers to back more aggressively with us", open more dealers, and raise the company's "dealer throughput on a per-dealer basis". Investments, or expenses, will also continue in building the Birla Opus brand "where we have other initiatives also planned", the management said.

 

In the paints segment, the company's geographical outreach is nearly equal among the northern, western, southern, and eastern regions with "no material difference" between them, the management said. In terms of sales in the paints segment, the management said its products are "already available in more than 5,500 towns...(and) moving across all town segments".

 

The company's paints sales in the institutional segment, comprising of real estate developers and other corporate wholesale buyers, is lagging behind the sales momentum in the retail sector, according to the management. The retail sector is catered to by the company's dealers distribution network.

 

The management said that even as the paints industry saw a slowdown in the December quarter with sales volume flat or marginally lower, Grasim gained market share. To a question on whether sales in the paints industry picked up in January and the current month so far, the management said it was hearing from dealers that sales were "a bit better" but it was "very early to say" whether the March quarter would be "significantly better" than the December quarter.

 

Along with sales momentum in the new paints business, Grasim is also gaining traction in its young segment of business-to-business e-commerce. The management said this segment "continues to attain higher revenues quarter on quarter." The company, however, does not disclose the revenue and EBITDA numbers for the B2B e-commerce business.

 

For earnings growth, Grasim is largely reliant on its old key segments of chemicals and cellulosic staple fibre. In the December quarter, the company's chemicals segment recorded a 25% jump, on a year-on-year basis, in EBITDA at INR 3.29 billion, on the back of 12% revenue growth and muted 1% sales volume growth. The management said in the investor call that the chemicals segment EBITDA grew due to strong realisations from higher caustic soda prices. The profitability in chlorine derivatives also aided EBITDA growth in the chemicals segment.

 

An opposite trajectory for EBITDA was seen in the company's cellulosic staple fibre segment in the December quarter. The EBITDA fell 18% to INR 3.31 billion despite a 6% increase in revenue at INR 39.34 billion. The management said the EBITDA weakness in this segment was mainly due to prices of key raw materials, dissolving grade pulp, caustic, and sulphur rising more than 10%.

 

Going ahead, the management of Grasim has expressed caution on the macros front. In 2025, "rising policy uncertainty, protectionism and geopolitical tensions signal a more volatile and fragmented global economy," the management said.

 

At 1434 IST, shares of the company were 0.4% higher at INR 2,482 on the National Stock Exchange.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

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