Grasim, The Aditya Birla Group's Flagship Company Reports Excellent Performance For Q4 FY 2006

Mumbai, Maharashtra, India , 2006-04-27

Grasim, the flagship Company of the Aditya Birla Group, has posted excellent performance for the quarter 31st March 2006. Consolidated revenues soared by 17% from Rs.2,475 crores to Rs.2,901 crores. Net Profit rose appreciably by 39% from Rs.249 crores to Rs.347 crores. The Cement business of Grasim and its subsidiaries contributed significantly to the superior performance during the quarter. The performance of Viscose Staple Fibre business too showed a remarkable improvement. The Sponge Iron business, however, continued to be constrained on account of phenomenal rise in input costs.

The results for FY 2006 vis-à-vis FY 2005 have been equally impressive. Consolidated revenues at Rs.10,200 crores reflected a 10% increase over the corresponding year. Net Profit after tax too rose handsomely by 18% at Rs.1,039 crores. Superior performance from its Cement business, cost optimization and a substantially reduced interest burden fuelled Grasim’s growth in revenues and earnings during the year. But for the setback in the Sponge Iron business, Grasim’s performance would have been much better.

Grasim’s Stand-alone Financial Performance

On a stand-alone basis too, Grasim has performed very well during Q4FY06. An excellent performance from its Cement business and improved performance from its Chemical business resulted in Revenues being higher by 11% at Rs.1,815 crores. Effective fund management led to a sharp decline in interest costs, which at Rs.24 crores was lower by 31%. Net Profit for the quarter was up by 14% at Rs.263 crores, despite the weak performance of its Sponge Iron business.

Dividend

The Board of Directors has recommended a dividend of 200% (last year: 160%). Additionally, the Company will absorb Corporate Tax on Dividend (CTD) @ 14.025%. The total payout on this account (inclusive of CTD) would be Rs.209 crores (Rs.167 crores), an increase of 25% over the dividend paid in the previous year.

Viscose Staple Fibre (VSF) Business

The VSF business’ performance has been good. Despite the record global cotton crop for the second consecutive year and disturbances in European markets post-quota abolition, the business recorded its highest ever sales volumes of 242,399 tons. This was made possible due to a healthy domestic demand and higher VSF exports to South Asian countries. The Company took a conscious decision to scale down its production with a view to liquidating inventory. As a result, Production was lower by 8% at 228,981 tons. Realisations were lower at Rs.73,786 per ton, reflecting the lower prices of cotton and VSF globally.

Q4FY06 reflected a bounce back in VSF segment. Production was higher by 2% at 64,606 tons. Sales volumes grew significantly by 12% at 60,636 tons owing to the sharp rise in direct and deemed exports. On a sequential basis, realizations recorded a healthy growth of 6%.

A total capital outlay of over Rs.627 crores towards capacity expansion and modernization at its VSF plants has been planned. This will increase VSF capacity gradually to 306,950 tons per annum from its current level of 257,325 tons. The total expansion is expected to be completed by FY08.

Production of paper grade pulp at the newly acquired St. Anne Nackawic Pulp Mill has commenced as per schedule. Production of Rayon grade pulp is expected to commence in the 2nd quarter of FY08. This would help in augmenting the supply of quality pulp.

The integrated plantation-cum-pulp plant planned by the Company at Laos is on track. The Company would be able to source its requirement of quality pulp in adequate quantities upon implementation of this project.

The Company’s Fibre production at Nagda may be impacted in the 1st quarter of FY07 due to poor monsoons in the last year. As a pro-active step to meet the requirement of its customers, the Company is shoring up its inventory by running all its plants beyond their rated capacity. As a long-term measure, Grasim is also putting up a captive reservoir at its Nagda plant which shall help in sustaining its operations for about 45 days.

The strong demand emanating for VSF, both in India and other South Asian countries bodes well for the business. On the realization front too, things appear positive on the back of the expected recovery in global cotton prices. The outlook for the business continues to be good.

Cement Business

The Cement business posted an excellent performance, propelled by strong growth in demand and realisations. Higher capacity utilisation, increased sales volumes and better realizations translated into improvement in operating margins and increased profitability.

Production at 13.83 Mn. tons and Sales volumes at 13.99 Mn. tons were higher by 11% over the corresponding year. Realisations too rose by 6% at Rs.1,987 per ton. Reduced power consumption, increase in blended cement ratio and better economies of scale contributed in no small measure to the business.

The performance of Cement business during Q4FY06 has been outstanding. Capacity utilisation was an impressive 115%. The robust demand growth pushed up volumes by 15%. Realisations surged by 12% at Rs.2,155 per ton.

The White Cement business too performed very well during the year. Production and Sales volumes were higher by 11% and 12% respectively. Realisations too were higher by 7%.

Cement Subsidiaries

The performance of UltraTech Cement Limited (UltraTech), a subsidiary, during the year was noteworthy. It achieved a cement sale of 13.72 Mn. tons and clinker sale of 1.33 Mn. tons. Domestic cement realizations clocked a healthy growth of 14% at Rs.2,000 per ton.

Shree Digvijay Cement Company Limited, another subsidiary, too has reported a significant improvement in its performance, with production, sales volumes and realisations being higher over the corresponding year.

Cement Capex plan

The Company has firmed up plans to expand its capacity by 8 Mn. TPA by:

-- setting up a Greenfield cement plant at Kotputli in Rajasthan, with a split grinding unit, of a total capacity of 4 Mn. TPA;

-- expanding its capacity at Shambhupura in Rajasthan and adding a split grinding unit, of a total capacity of 4 Mn. TPA.

This would entail an investment of approximately Rs.2475 crores, which includes the cost of setting up of thermal power plants at both these places. This expansion would enable the Company cater to the increasing demand in the northern region.

Additionally, the Company plans to invest around Rs.1,261 crores over the next 2 years on modernization, de-bottlenecking, setting up of grinding unit at Dadri, RMCs and captive power plants. This will enhance Company’s competitive edge further.

UltraTech has lined up plans for a capex of Rs.1,520 crores, largely towards setting up of a new power plant, de-bottlenecking and modernization. The amount will be spent over the next 3years.

The Company’s Cement business expects to sustain its growth in revenues and earnings. This optimism stems from the increased spending on infrastructure sector by the Government and the strong growth in housing sector, both of which would positively fuel the Cement sector.

Sponge Iron Business

The performance of the Sponge Iron business remained under severe pressure during the year. Production was constrained due to non-availability of natural gas. Sales volumes, as a result, declined. Operating margins were squeezed due to a steep increase in the prices of inputs, viz., natural gas, iron ore and pellets.

The Company will place increased emphasis on optimum utilisation of plant capacity and enhance volumes. The availability of natural gas and its pricing, however, will continue to remain an area of concern in the short to medium term.

Chemical Business

The Chemical business recorded an improvement over the previous year. Both Production and Sales were up by 2%, while Realizations amplified by 9% at Rs.20,594 per ton.

Plans are afoot to convert the remaining Caustic soda plant based on mercury cell technology into new energy efficient membrane cell technology at a cost of Rs.148 crores. The converted plant is expected to go on stream by Q3FY07.

The Company’s thrust will continue to be on optimum utilization of the plant capacity. The outlook on price is stable due to improved demand from end user sectors.

Outlook

Given Grasim’s inherent strength, cost optimization measures, capacity expansion plans, strategic planning and effective financial management, the prospects for the Company continue to be positive.

To view operation/production figures and detailed results table, click on the following links or copy and paste them in your browser.

http://www.businesswireindia.com/attachments/Grasim_%20Press%20_Release_%20FY06.doc

http://www.businesswireindia.com/attachments/Grasim_results%20-%20fy06.xls
Contact

Dr. Pragnya Ram, Grasim Industries Limited, +91 (22) 5652 5163, 5652 5000
[email protected]