Net profit at Grasim Industries has dipped to Rs 274 crore despite higher sales and lower tax outflow for the year ended March 31, 1997. The Rs 58-crore fall is attributed to lower realisations, higher cost of production and fall in other income. Despite a slowdown in demand for most of its products like cement, steel and textiles, the Aditya Birla flagship managed to achieve a 12 per cent rise in sales to Rs 3,087 crore with higher volumes. Viscose Staple Fiber (VSF), which is a major contributor to the company's turnover (around 45 per cent), reported a 4 per cent drop in output from 1.62 to 1.55 lakh tonnes. The drop is mainly on account of a 46-day shutdown at the Nagda plant while the other two plants at Mavoor and Harihar were hit by floods. VSF production also suffered due to power shortage.

Besides, production of rayon grade wood pulp (RGWP) and caustic soda remained stagnant at 1.11 lakh tonnes and 1.22 lakh tonnes, respectively. Despite lower realisations in steel and cement, the company was able to report a growth in turnover due to higher volumes. While Cement output rose from 32.7 to 41 lakh tonnes during 1996-97, sponge iron saw a 103 per cent jump in production from 3.47 lakh tonnes to 7.06 lakh tonnes.

Grasim spent around Rs 400 crore on various capex programmes during the year and financed the same by liquidating its investments to the tune of Rs 620 crore. Lower investments led to a lower other income of Rs 152.91 crore as against Rs 211 crore in the previous year. The other income also included profits earned by the company through sale of 22 lakh shares of Indian Rayon at Rs 330 to Hindalco which amounted to Rs 45.3 crore.

However, the main blow to the company was higher expenditure due to rising input costs. While operating profit fell by Rs 7 crore to Rs 562 crore while OPM fell from 20.49 to 18.44 per cent.

Interest cost was higher at Rs 259 crore during the period under consideration against Rs 230 crore in 1995-96 due to enhanced borrowing to fund the on-going modernisation and expansion projects. Depreciation cost was higher by 19 per cent at Rs 147 crore on account of additions made to the gross block during the year. Due to higher outflow on account of depreciation and interest, the company was able to halve its tax liability from Rs 88 crore in 1995-96 to Rs 41 crore for 1996-97. This cushioned Grasim's bottomline to a certain extent as the drop reported in net profit was 17.25 per cent while drop in profit before tax stood at around 25 per cent. The company reported a lower net profit of Rs 274 crore for 1996-97 as against Rs 332 crore for 1995-96. The earnings per share fell from Rs 45.89 to 37.97. In the current fiscal, profit margins of the company are expected to be under pressure as demand for cement is poor in the Northern and Eastern India. The prices of sponge iron are also low and with cotton prices being lower, demand for VSF is expected to be low. There is no scope of appreciation in the scrip in medium term.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.