Grasim Operating Profit Rises On Viscose Business, But Chemicals Weigh

The company's consolidated net profit rose 15.5% year-on-year to Rs 2,722 crore in the quarter ended March. Its Ebitda was up 28.7% to Rs 7,892 crore.

On a standalone basis, however, the company reported a loss of Rs 440.9 crore, as against a profit Rs 93.5 crore in the reporting quarter a year ago. This was due to an exceptional loss of Rs 715.6 crore.

Morgan Stanley said that volumes from the viscose business were slightly ahead of its estimates.

Although viscose staple fibre volumes continue to do well, on the back of domestic demand, viscose filament yarn volumes fell on year as business continued to be impacted by cheap imports amid weak market demand, the brokerage said.

Consequently, while realisations remained under pressure, the Ebitda margin was better than expected, helped by lower costs, it said.

The company's consolidated net profit rose 15.5% year-on-year to Rs 2,722 crore in the quarter ended March. Its Ebitda was up 28.7% to Rs 7,892 crore.

On a standalone basis, however, the company reported a loss of Rs 440.9 crore, as against a profit Rs 93.5 crore in the reporting quarter a year ago. This was due to an exceptional loss of Rs 715.6 crore.

Morgan Stanley said that volumes from the viscose business were slightly ahead of its estimates.

Although viscose staple fibre volumes continue to do well, on the back of domestic demand, viscose filament yarn volumes fell on year as business continued to be impacted by cheap imports amid weak market demand, the brokerage said.

Consequently, while realisations remained under pressure, the Ebitda margin was better than expected, helped by lower costs, it said.

Jefferies also noted that VSF profitability improved both annually and sequentially, on better volumes and lower costs.

However, the chemicals business disappointed, according to the brokerage. While specialty chemicals performance was driven by better contribution margins and higher sales volume, Ebitda was lower as caustic segment realisations were impacted by domestic oversupply situation and cheaper imports, it said.

"Profitability (of the chemicals business) has been impacted mainly due to the oversupply situation and weakness in demand of chlorine derivatives," the company said in a press release.

Here is what the two brokerages said.

• Has an 'equal-weight' rating, with a target of Rs 2,560 per share, implying an upside of 5%.

• Viscose business did well while chemicals were weak.

• Their calculations for paints and B2B business suggests combines Ebitda loss of Rs 1 billion.

• Ebitda margins were better than expected, helped by lower costs.

• Has a 'buy' rating, with a target price of Rs 2,600 apiece, implying an upside of 6%.

• VSF led beat, new segments scaling up.

• Segment Ebitda above expectations in VSF.

• Segment Ebitda below expectations in chemicals.

• Launch milestones of paint business appears on track.

• Material revenue scale up in B2B e-commerce business.

Shares of the company fell for the second consecutive day on Thursday. They dipped 1.67%, the lowest level since May 17, before paring loss to trade 0.6% lower at 9:41 a.m. This compares to a 0.3% advance in the NSE Nifty 50.

The stock has risen 13.98% year-to-date and 41.66% in the last 12 months. Total traded volume so far in the day stood at 0.25 times its 30-day average. The relative strength index was at 58.66.

Of the 10 analysts tracking the company, seven maintain a 'buy' rating, two recommend a 'hold' and one suggests 'sell', according to Bloomberg data. The average 12-month analysts' price target implies an upside of 6.9%.