Grasim: Upturn hoist

Sponge iron and cement businesses help Grasim post improved results

Grasim has reported an improved performance for the quarter ended March 2004, with its net profits rising 66 per cent to Rs 282.07 crore (excluding exceptional items).

Overall operating margins rose 840 basis points to 28.4 per cent driven by a sharp upturn in the performance of the sponge iron and cement division. On the bourses, the scrip rose 2.66 per cent to close at Rs 1,197 on Wednesday.

The sponge iron division showed improved performance due to strong demand from the steel industry. A rise in sales volumes was accompanied by price realisations surging 44 per cent to Rs 9,188 per tonne. As a result, this segment's results rose three times to Rs 100.52 crore in Q4 FY04 and segment margins rose 1,800 basis points to 43.2 per cent.

However, for Grasim the key divisions are cement and fibre and pulp "" in the case of the cement division, Grasim like other large companies has seen an improvement in its performance due to higher demand and price realisations jumping to approximately Rs 170-Rs 175 per 50 kg bag, in the quarter ended March 2004.

Also an increase in blended cement from 35 per cent to 46 per cent of total cement production has resulted in greater operational efficiency as cement output increases for the same amount of clinker. Hence, segment profits rose 130 per cent to 133.15 crore in Q4FY04 and segment margins rose 872 basis points to 18.6 per cent.

In the case of viscose staple fibre, an upturn in the clothing and textile industry helped this division to grow profits by 23.5 per cent to Rs 152.34 crore in the March quarter, although margins were unchanged at 30.6 per cent.

Going forward, the company is well positioned to take advantage of the current boom in the cement industry, as the company is expected to complete the acquisition of UltraTech Cemco within the next 3-6 months.

Corporation Bank numbers

The Corporation Bank stock has moved up sharply in the past one month, in common with other banking stocks. Its fourth-quarter results show that net profit has risen to Rs 119.49 crore compared with a mere Rs 47.28 crore in the corresponding period of FY 2003.

The jump in net profit is largely due to much lower provisions "" which stood at 19.87 crore in Q4FY04, against Rs 83.83 crore in Q4FY03. At the operating level, the increase in profits is much more modest, from Rs 170.78 crore to Rs 180.73 crore.

Nevertheless, the Q4 results are better than its showing during the previous quarter, when net profit declined by 25.4 per cent, year-on-year, and gross profit fell 12.4 per cent.

But it's more interesting comparing the sequential numbers to see whether the bank is keeping up the growth momentum. Unfortunately, net interest income fell from Rs 267.76 crore in Q3 to Rs 245.86 crore in Q4.

As expected, other income also declined further. The segmental results show that treasury income and profit declined from Rs 274 crore and Rs 56 crore, respectively, in Q3 to Rs 149 crore and Rs 45 crore, respectively in Q4.

On the other hand, operating expenses went up. The upshot was that operating profit fell substantially from Rs 235.62 crore for the quarter ended December 2003 to Rs 180.73 crore for the quarter ended March 2004.

The culprit has been income on investments, which has shown a substantial decline sequentially. At the net level, however, the writeback of provisions, including a writeback of Rs 46.14 crore for non-performing assets, helped boost net profit by 5.4 per cent compared with Q3 levels.

Note that as a result of the lower provisioning, net non-performing assets have risen to 1.80 per cent, compared with 1.69 per cent at the end of the third quarter. In absolute terms, net NPAs have increased from Rs 198 crore to Rs 249 crore, although gross NPAs have declined.

In short, Corporation Bank needs to expand its loan book at a much more rapid pace to make up for the lower scope for capital gains.

With contributions from Amriteshwar Mathur