Viscose margin Jul-Sep under pressure as China prices dn, says Grasim

12 Aug 2022

The softening in viscose staple fibre prices in China since June will make it difficult for Grasim Industries Ltd to sustain price increases taken in the June quarter and consequently put pressure on the operating margin of its viscose segment, the company indicated in a conference call with analysts and investors today.

"China being the biggest producer and consumer of VSF (viscose staple fibre) has a big influence on international prices. Since end of June, viscose staple fibre prices have started correcting in China and in India we have to adjust a little bit," the company management said.

The company was addressing analyst queries on whether the price decline of around 6-9% in China since end of June would have an adverse impact on Grasim's viscose segment margins going forward and whether the high margin levels in the segment were behind.

The company management said that in the September quarter it may not be able to effect price hikes in viscose staple fibre sales like it did in the June quarter due to the current environment in the international markets and particularly because the ongoing correction in viscose staple fibre prices in China was quite severe.

"So margins (in viscose segment) will be under pressure and will not be like in favorable quarters," the management said.

The viscose segment margin was also affected in the June quarter contracting sharply to 11.6% from 23.2% a year ago.

The operating profit, defined as earnings before interest, tax, depreciation and amortisation, of the viscose segment went up by a mere 2% on year to 5 bln rupees.

But the viscose segment revenue more than doubled to 43 bln rupees in Apr-Jun and made up for nearly 60% of total revenue.

This came on the back of a volume rise of 76% on year to 197,000 tn and improved sales realisations.

The company said that the viscose staple fibre volume growth in the June quarter was aided by around 51,000 tn contribution from its brownfield expansion at the Vilayat site.

The viscose filament yarn volume was up 34% on year to 10,300 tn in Apr-Jun.

Overall, Grasim's sales jumped 93% on year to 72.5 bln rupees in Apr-Jun while its net profit rose 68% to 8.1 bln rupees.