VSF margins likely to remain under pressure - Grasim

25 Jul '08

3 min read

Grasim, an Aditya Birla Group Company, announced its results for the quarter ended 30th June, 2008. The Company's Revenues for the quarter were at Rs.4,430 crores (Rs.4,060 crores). Net Profit was marginally higher at Rs.672 crores (Rs.670 crores). Viewed in the context of the general slowdown of economy and spiralling prices of key inputs, the performance has been satisfactory.

Viscose Staple Fibre (VSF) Business:
The VSF business' performance during the quarter was muted. Production was curtailed due to lower off-take. The liquidation of accumulated inventory in the value chain, substitution of VSF with other fibres on account of high VSF prices and general slowdown of the economy impacted the performance. Margins were depressed due to the record increase in sulphur prices and higher prices of other key inputs like Pulp and Caustic.

Margins are likely to remain under pressure in the short to medium term, owing to the escalating prices of key inputs. The demand for VSF is expected to remain subdued in the short term until the inventory in the pipeline gets liquidated and re-substitution sets in with increasing prices of Cotton and Polyester Staple Fibre.

The business will continue its focus on value added products and market enlargement through promotion of specialty fibres, both in domestic and export markets. The long-term outlook for VSF business is positive, given the growing preference for comfort fabrics due to global warming.

Chemical Plant:
The Chemical plant posted an improved performance. Caustic soda volumes were higher by 11% at 47,800 tons. Realisations grew by 30% at Rs.22,352 per ton. The outlook for Chemical business appears to be good, given the higher demand from user industry and expected strengthening of international prices.

Sponge Iron Business:
The production of sponge iron was lower by 27% during the quarter on account of the planned maintenance shutdown. As a result, Sales volumes declined by 35% at 91,206 tons. Realisations led by the substantial rise in global scrap prices, were higher by 62% at Rs.24,027 per ton, leading to higher operating profit.

The Board of Directors of the Company had, at its meeting held in June, 2008, approved the sale/transfer of the Sponge Iron business, on a slump sale basis. The divestment would be done under a Court approved Scheme of Arrangement under Sections 391-394 of the Companies Act, 1956.

Outlook:
The Company will continue to fortify its leadership position in the VSF and Cement sectors. With substantial increase in capacities, improved cost optimization, higher productivity and strong fundamentals, the prospects for the Company continue to be positive.

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Grasim Industries Limited

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