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Informist, Wednesday, May 21, 2025

 

By Rajesh Gajra

 

NEW DELHI – Chemicals, cellulosic fibre, and paints producer Grasim Industries Ltd. will likely report a net loss in the March quarter due to high operating costs in the company's two new business of paints and business-to-business ecommerce platform. The company's bottom line had slipped into the red in the previous quarter largely due to these reasons.

 

The old segments of cellulosic staple fibre and chemicals are expected to report a moderate to steady year-on-year growth in volume, realisations, and operating margin. The paints and B2B ecommerce businesses will, however, add to Grasim's top-line growth as their revenue contribution was low in the year-ago quarter but which has been increasing every quarter till December.

 

The push by the company to grow revenues, particularly in the paints business, has inevitably resulted in the operating costs such as marketing and distribution expenses and running costs rise rapidly over the last one year. Analysts believe these businesses may be generating substantial operating losses. Grasim commenced commercial production of paints in April last year.

 

Grasim is likely to report a standalone net loss of INR 1.32 billion in the March quarter, according to an average of estimates by four brokerage firms. This is a deterioration compared with the year-ago quarter when the net profit, adjusted for tax-writebacks and exceptional items, was INR 2.75 billion.

 

Sequentially, the estimated net loss is lower than the December quarter when the company had reported a net loss of INR 1.69 billion. All the four brokerages have estimated a net loss for Grasim and these range from a low of INR 1.66 billion by Nuvama Wealth Management to INR 1 billion by Motilal Oswal Financial Services.

 

The standalone revenue of the company is seen rising 28% on year and 6% on quarter to INR 86.47 billion in the reporting quarter. Revenue estimates vary from a low of INR 85.96 billion by Kotak Securities' institutional equities division to a high of INR 87.41 billion by ICICI Securities. The earnings before interest, tax, depreciation, and amortisation are likely to be INR 3.38 billion.

 

In the December quarter, Grasim reported a standalone net loss of INR 1.69 billion, against a net profit of INR 2.36 billion in the year-ago quarter. The company's revenue from operations rose 27% on year to INR 81.20 billion.

 

 

The company's revenue in the March quarter is likely to rise 27% on year, according to Motilal Oswal, due to contributions from the paints and B2B ecommerce businesses. The brokerage estimates on-year volume growth of 1% in the viscose stable fibre segment and 2% in the chemicals segment. Motilal Oswal expects the company's viscose stable fibre realisation to have increased 6% on year and chemicals realisation to have risen 11%.

 

"We expect marginal 2.8% qoq (quarter on quarter) increase in volumes in VSF (viscose staple fibre) operations on continued weakness in VFY (viscose filament yarn) segment and 2.2% qoq increase in volumes in chemical operations on gradual domestic demand improvement, " Kotak said in a report. Brokerage ICICI Securities expects Grasim's paints revenue in the March quarter to be around INR 9 billion, against its estimate of INR 6.5 billion for the previous quarter. Grasim does not disclose the financials for the paints and B2B ecommerce segments as these have not crossed the minimum thresholds for a segment to become separately reportable, as per the company's internal procedure.

 

Grasim's EBITDA and margins in the reporting quarter are seen supported by the cellulosic staple fibre and chemicals segments. "Realisations in VSF and chemical segments are improving. In contrast, losses from new business of paints and B2B shall hamper the overall margins of the company," brokerage Nuvama said. Kotak expects Grasim's EBIDTA to be hampered by higher losses in paints division on account of ongoing ramp-up and increased marketing spends.

 

The bottom-line performance of Grasim will track the EBITDA growth but, according to analysts, non-operating items such as depreciation and finance costs are likely to have gone up notably and be a drag. Motilal Oswal expects interest costs to jump up 58% on year and the depreciation expense to increase 25% in the March quarter. In the December quarter, Grasim's finance costs had risen 69% on year to INR 1.81 billion as the net debt had gone up to INR 82.77 billion as of Dec. 31 from INR 59.81 billion on Mar. 31. In that quarter, the depreciation expense had also jumped 42% on year to INR 4.21 billion.

 

The company will announce its March quarter earnings on Thursday. After announcement of earnings, investors will keenly watch for updates on the company's paints and B2B ecommerce segments and the demand scenario for its cellulosic staple fibre and chemicals segment.

 

On Wednesday, shares of Grasim ended 0.5% down at INR 2,706.90 on the National Stock Exchange. At current price level the shares are 9% higher than INR 2,487.60 on Feb 7, the trading day prior to the company's announcement of the December quarter earnings on Feb. 10. Grasim has eight buy recommendations from analysts, two hold recommendations, and one sell recommendation, with an average target price of INR 2,920.

 

Following are the March quarter earnings estimates for Grasim Industries based on reports from four brokerage firms in descending order of estimate of net profit:

 

Brokerage firm:	Net Sales	Net Profit	EBITDA
	(In INR million)
Motilal Oswal Financial Services Ltd	86,300	-1,000	3,600
ICICI Securities Ltd	87,414	-1,270	3,535
Kotak Institutional Equities	85,963	-1,367	3,229
Nuvama Wealth Management Ltd	86,204	-1,662	3,169
Average	86,470	-1,325	3,383

End

 

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

 

Edited by Akul Nishant Akhoury

 

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