Although Grasim Posted its lowest Profit in Five Years, most of The Factors Responsible for this De-Growth were Industry Specific.
What started just 10 days after India became independent is now the global leader in Viscose Staple Fibre (VSF, a semi-synthetic fibre made from naturally occurring polymers) – the company holds 21% global market share in the category. And not just VSF, it’s today the country’s largest merchant producer of sponge iron, the second-largest caustic soda maker and the eight-largest cement manufacturer in the world. Grasim Industries, one of the flagship companies of Aditya Birla Group, has certainly come a long way since its inception in 1948.
However, it seems that the last fiscal didn’t turn out to be a usual lucky year for the company which contributes about 15% to the conglomerates’ (read: Aditya Birla Group) total turnover. Reason: For FY 2011, Grasim Industries reported a massive 43.5% decline in its net profit, from Rs.20.92 billion in FY2010 to Rs.11.82 billion in FY2011. This, in turn forced the company to decent to rank 62 in the B&E Power 100 list for 2011 from 32 last year.
Although this was the company’s lowest profit figure in the last five years, most of the factors responsible for this de-growth were industry specific. The decline in profit had nothing to do with the operational performance. In fact, if analysts are to be believed, the company posted yet another year of splendid growth, as it has been doing over the last many years. For instance, over the last decade, the production of VSF has risen from 218,000 tonnes to 302,000 tonnes. Even the production scale for Grey Cement has grown from 9.10 million tonnes to 9.54 million tonnes during the same decade. As for the Ready Mix Concrete, its production has also sprung from a mere 0.10 million cubic metres to 1.08 million cubic metres in the last 10 fiscal years. Agrees J. Radhakrishnan, Research Analyst at IIFL as he tells B&E, “Grasim Industries has performed very well in the last fiscal, particularly on the VSF front.”
Buoyed by a global shortage in cotton and revival in the textile industry, the VSF business posted 17% y-o-y topline growth, from Rs.35.74 billion in FY2010 to Rs.41.70 in FY2011. Although the sales volume went down slightly, from 308,431 tonnes in FY2010 to 305,072 tonnes in FY 2011, realisations improved by 17%. However, operating profit margin (OPM) of the VSF business declined by 750 basis points y-o-y due to a substantial increase in input costs as they could not be passed on entirely. During the year, costs of major inputs such as pulp, sulphur and energy increased by 35%, 119% and 17%, respectively and this made a major dent in the company’s bottomline. In fact, analysts fear that the trend might continue in the near future as well.
However, it seems that the last fiscal didn’t turn out to be a usual lucky year for the company which contributes about 15% to the conglomerates’ (read: Aditya Birla Group) total turnover. Reason: For FY 2011, Grasim Industries reported a massive 43.5% decline in its net profit, from Rs.20.92 billion in FY2010 to Rs.11.82 billion in FY2011. This, in turn forced the company to decent to rank 62 in the B&E Power 100 list for 2011 from 32 last year.
Although this was the company’s lowest profit figure in the last five years, most of the factors responsible for this de-growth were industry specific. The decline in profit had nothing to do with the operational performance. In fact, if analysts are to be believed, the company posted yet another year of splendid growth, as it has been doing over the last many years. For instance, over the last decade, the production of VSF has risen from 218,000 tonnes to 302,000 tonnes. Even the production scale for Grey Cement has grown from 9.10 million tonnes to 9.54 million tonnes during the same decade. As for the Ready Mix Concrete, its production has also sprung from a mere 0.10 million cubic metres to 1.08 million cubic metres in the last 10 fiscal years. Agrees J. Radhakrishnan, Research Analyst at IIFL as he tells B&E, “Grasim Industries has performed very well in the last fiscal, particularly on the VSF front.”
Buoyed by a global shortage in cotton and revival in the textile industry, the VSF business posted 17% y-o-y topline growth, from Rs.35.74 billion in FY2010 to Rs.41.70 in FY2011. Although the sales volume went down slightly, from 308,431 tonnes in FY2010 to 305,072 tonnes in FY 2011, realisations improved by 17%. However, operating profit margin (OPM) of the VSF business declined by 750 basis points y-o-y due to a substantial increase in input costs as they could not be passed on entirely. During the year, costs of major inputs such as pulp, sulphur and energy increased by 35%, 119% and 17%, respectively and this made a major dent in the company’s bottomline. In fact, analysts fear that the trend might continue in the near future as well.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
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