Mumbai: Grasim (www.grasim.com), the flagship company of the Aditya Birla group, has reported a turnover of Rs 1,175 crore (Rs 1,136 crore) for the quarter ended June 2003.

The net profit after total tax expense was up by 24 per cent at Rs 131 crore (Rs 105 crore), even after factoring the substantially higher tax expenses, at Rs.50 crore.

That despite the shutdown of two of its viscose staple fibre (VSF) plants for nearly 45 days in the quarter, due to an acute water shortage, Grasim has delivered such a performance, is indeed commendable.

VSF business
Given the good monsoon, the VSF plants at Harihar and Nagda have since resumed operations. Lower capacity utilisation at 71 per cent this quarter, vis-à-vis 82 per cent in the corresponding quarter of the earlier year and a 15-per cent decline in sales volume is attributable to the water shortage. Higher realisation and maximum cost-optimisation have enabled the company to partially offset the impact on its VSF operations.

To provide a long-term solution to the water shortage, the company has increased the height of its captive reservoir at Nagda. Alongside, it is building a reservoir also at Harihar. Going forward, these measures will help minimise the impact of poor monsoons.

The company has been aggressively growing the VSF business through widening the product reach and application. It has also formed strategic alliances with leading fabric manufacturers. Positioning VSF at the premium end of the market, as the ideal fibre in terms of feel, comfort, fashion and hygiene, is ongoing. The Birla Viscose brand has been very well established among the quality-conscious user segments.

The company's VSF Research and Application Centre at Kharach, which will be operational by 2005, is expected to further bolster VSF usage. The total outlay for this centre is Rs 27 crore.

Cement business
In the cement business, production at 2.91 million MT is up by 4 per cent and sales at 2.90 million MT have risen by 5 per cent in comparison to the corresponding quarter of the previous year. The share of blended cement increased from 26 per cent to 43 per cent during the quarter. The division has posted better operating performance, despite realisation being stagnant.

The division's capex for the financial years 2004 and 2005 is in the region of Rs 290 crore. The power plant at Grasim South, commissioned recently, has entailed a cost of Rs 48 crore. The implementation of ongoing modernisation and capacity expansion through de-bottlenecking will help raise Grasim's cement capacity to 13.47 million tonnes by FY 2004.

The ongoing focus of the government on the development of the infrastructure sector and the expected strong growth in the housing sector augur well for the company's cement business.

Sponge iron business
The sponge iron business has posted a stellar performance, recording an impressive growth of 12 per cent, both in production and sales, in comparison to the corresponding quarter of the previous year. Given the higher demand for sponge iron from western markets, sales realisation has risen considerably by 32 per cent, resulting in excellent increase in operating profit and operating margins.

The demand for steel is on the upswing both in the domestic and international markets. The outlook for the sponge iron business thus seems to be positive. A major concern, however, continues to be the availability of natural gas and its pricing.

Chemical business
The water shortage has affected the company's chemical plant's operations as well. Capacity utilisation declined to 57 per cent as compared to 76 per cent, and sales volumes at 28,886 MT were down by 7 per cent as compared to the corresponding quarter of the previous year. But despite the steep fall in the international prices of caustic soda and lower capacity utilisation, operating profits have grown, largely on the back of increased ECU realisation due to higher prices of ancillary products.

To maintain operations at optimum level and improve profitability, the company aims to focus on maximum utilisation of capacity and R&D efforts towards development of ancillary products for more value addition and value realisation.

Stake in L&T's cement business
As a part of the proposal for the demerger of cement business of Larsen & Toubro into a separate company, the company proposes to acquire from L&T 8.5-per cent equity stake in the proposed new cement company and to make an open offer for purchase of an additional 30 per cent in the equity of the new cement company. Post-demerger, the company also proposes to sell to L&T foundation and trusts its entire holding in L&T. The completion of the demerger process and consequential acquisition/sale of shares is subject to various statutory and regulatory approvals.

Outlook
Grasim's strong fundamentals, its unrelenting focus on operational excellence, cost optimisation, effective financial management, continuous restructuring of business processes, together with the expected improvement in the cement sector, augur well for the company. The prospects for Grasim continue to be bright, said a company press release.