Cement stocks drop after Grasim Inds Q3 result disappoints

Four cement stocks fell by 0.96% to 2.78% at 13:15 IST on BSE after Grasim Industries, which has exposure to the cement sector through its subsidiary UltraTech Cement reported muted growth in net profit in Q3 December 2014.

Meanwhile, the S&P BSE Sensex was down 191.37 points or 0.66% at 28,985.55.

Among cement stocks, ACC (down 1.73%), Ambuja Cements (down 1.59%), and UltraTech Cement (down 2.78%), declined.

Grasim Industries declined 0.96% after consolidated net profit rose 0.5% to Rs 333.61 crore on 12.05% growth in total income to Rs 8093.56 crore in Q3 December 2014 over Q3 December 2013. The Q3 result was announced on Saturday, 31 January 2015.

Grasim Industries' profit before interest, depreciation, and taxation (PBIDT) rose 10% to Rs 1260 crore in Q3 December 2014 over Q3 December 2013.

Grasim Industries said that the implementation of growth plans has led to a significant capacity increase in both the VSF and cement businesses. At the Greenfield VSF project at Vilayat, 99K tonnes per annum (TPA) capacity has been commissioned during the year, Grasim Industries said. With acquisition of Jaypee cement units in Gujarat, the cement capacity increased by 4.8 million tonnes per annum (MTPA), it said. Cement grinding capacity of 1.4 MTPA went on-stream in Karnataka, Grasim added. 182,500 TPA caustic soda plant and 51,500 TPA epoxy plant commissioned last year are also being ramped up. Consequently, company's financial performance has been encouraging, Grasim Industries said in a statement.

Grasim Industries said that it has maintained its profit after tax (PAT) in Q3 December 2014 even after providing for additional interest and depreciation cost on the acquired cement units. The company is on track to ramp up the operations and achieve targeted efficiencies at these units as anticipated, to deliver planned profitability, Grasim Industries said in a statement.

Grasim Industries' subsidiary, UltraTech Cement has entered into a definitive agreement to acquire 2 units of Jaiprakash Associates in Satna cluster having a capacity of 4.9 MTPA with 180 megawatts (MW) power plants. This will propel the cement business capacity in India from about 60 MTPA to about 65 MTPA. On completion of brownfield expansion under implementation, the domestic capacity will increase to about 71 MTPA in 2016, Grasim Industries said. The units proposed to be acquired have surplus clinker capacity to augment cement capacity by a further 1.8 to 2.5 MTPA with investments in grinding units, Grasim Industries said in a statement.

In exchange of the above business, UltraTech shall issue non-convertible debentures worth Rs 4538 crore and non-convertible preference shares worth Rs 10 lakh and shall take over Rs 626.50 crore of debt and negative working capital of Rs 160.50 crore, Grasim Industries said in a statement.

Grasim Industries said that the transaction is subject to the approval of shareholders and creditors, sanction to the scheme of arrangement by the High Courts, approval of the Competition Commission of India and other statutory approvals.

With regard to the future business outlook, Grasim Industries said that the VSF sector will continue to face head winds for some more time due to the over capacity and sharp reduction in price of cotton and polyester. The slowdown in new capacity additions in China should lead to an improvement in industry utilization which augurs well for the company, Grasim said. The focus on cost optimisation will continue relentlessly, it added. The new plant at Vilayat with higher share of speciality product should help in facing the challenge, Grasim Industries said in a statement.

In cement, demand growth in the long term is likely to be over 8%, Grasim said. The key drivers will be revival of infrastructure projects supplemented by regulatory reforms and improvement in housing demand with the interest rate cut, Grasim added. The company with its existing and proposed capacity is well placed to benefit from the accelerated growth in the sector, Grasim Industries said in a statement.

With additional capacity coming on stream in both the businesses, the company will further consolidate its leadership position, Grasim said. The company is well-poised to benefit from the expected upturn in the economy, it added.

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