Grasim's operating margin hit hard by high input costs in Jan-Mar

 24-May-2022

Grasim Industries Ltd's earnings performance in the March quarter was hit by steep fall in operating margin even as revenues showed robust growth. The bottomline was saved by tax write-backs and deferred tax credits.

The Aditya Birla Group Company’s net profit more than doubled to 10.7 bln rupees in Jan-Mar from 4.8 bln rupees in the year ago quarter. Excluding the discontinued fertiliser segment revenues of the year-ago quarter, the net profit rose to 8.1 bln rupees from 4.6 bln rupees.

Grasim’s revenues from operations were up 45% on year to 64.8 bln rupees.

Viscose staple fibre and yarn segment’s revenue rose 46% to 37.7 bln rupees on the back of a 22% growth in sales volume to 179,000 tonne. The segment’s operating profit, however, fell sharply to 2.5 bln rupees in Jan-Mar from 6.3 bln rupees in the same quarter a year ago.

The company’s chemicals segment revenues went up by 69% to 24.9 bln rupees, notwithstanding the low 3% growth in caustic soda sales to 273,000 tonne. The company said the chlor-alkali business reported a strong performance in Jan-Mar.

The chemicals segment’s operating profit surged to 5 bln rupees in the March quarter from 1.9 bln rupees a year ago.

The overall operating margin, however, took a big hit due to surge in key input costs in Jan-Mar. The quarter saw on-year rise of 60% or more in three major expense heads.

The result was a drastic contraction in the operating margin to 11.8% in Jan-Mar from 18.4% a year ago.

Raw material costs rose sharply by 66% on year to 29.9 bln rupees while power and fuel costs surged by 68% to 10.5 bln rupees and other expenses rose by 60% to 10.3 bln rupees.

The surge in operating expenses brought down the operating profit by 7.3% on year to 7.5 bln rupees in the March quarter.

The sharp margin contraction would have led to a highly subdued bottomline performance for Grasim but a tax write-back of 3.2 bln rupees and a deferred tax credit of 1.2 bln rupees that enabled it to show a two-fold rise in net profit.

Grasim’s net cash stood at 5.5 bln rupees as of Mar 31.

The company, today, also announced a normal dividend of 5 rupees per share and an additional special dividend of 5 rupees per share.

Today, shares of Grasim ended 3.7% lower at 1,402.75 rupees on the NSE.