In per cent
Consolidated net profit	Rs. 781 crore	61
Consolidated net revenue	Rs. 4,743 crore	6

On a stand-alone basis, Grasim’s performance during the quarter has been impressive. Revenue was higher by 12 per cent at Rs. 3,026 crore (Rs. 2,703 crore). PBIDT at Rs. 1,159 crore (Rs. 678 crore) increased by 71 per cent. Despite higher interest cost, higher depreciation and a significant increase in tax expenses, net profit rose by 61 per cent at Rs. 674 crore (Rs. 419 crore).

The consolidated as well as the stand-alone results for the quarter are not strictly comparable with the corresponding quarter’s results, owing to the sale of sponge iron business on 22 May, 2009 and consolidation of Idea Cellular Limited as an Associate from 1 January, 2009, as against as a JV earlier.

On comparable basis, excluding sponge iron business from both Q2 FY10 and Q2 FY09 and consolidation of Idea as an Associate in Q2FY09-

• Revenue increased by 26 per cent on stand-alone basis and by 17 per cent on consolidated basis;
  
• PBIDT increased by 79 per cent on stand-alone basis and by 72 per cent on consolidated basis; and
  
• Net profit (before extraordinary gain) increased by 67 per cent on stand-alone basis and by 66 per cent on consolidated basis.

Highlights of Grasim’s operations

		Production			Sales
		Q2 FY10	Q2 FY09	Per cent change	Q2 FY10	Q2 FY09	Per cent change
Products
Cement	Mn. M.T.	4.63	3.65	27	4.56	3.70	23
White cement	M.T.	132,576	102,322	30	128,984	106,597	21
Wall Care Putty	M.T.	56,872	38,571	47	53,980	37,501	44
Viscose staple fibre	M.T.	76,669	62,973	22	73,993	62,536	18
Caustic soda	M.T.	56,985	55,137	3	59,119	53,103	11

Cement business
The cement business posted a robust performance during the quarter gone by. Production, supported by capacity expansion, expanded by 27 per cent at 4.63 million tons. Sales volumes registered an increase of 23 per cent at 4.56 million tons, on the back of strong demand growth in the northern and eastern regions. In the RMC business, the performance was impacted by the slowdown in the real estate sector. Higher volumes, softening of fuel prices and enhanced share of captive power resulted in better operating margins.

In the white cement segment, the performance was commendable. Production and sales volumes grew by 30 per cent and 21 per cent respectively over the corresponding quarter. Wall care putty clocked a 44 per cent growth in volumes.

Cement subsidiary
The performance of UltraTech Cement Limited, a subsidiary of Grasim, was impressive as well. Cement volumes grew by 10 per cent at 3.75 million tons. Net profit at Rs. 251 crore (Rs. 164 crore) was higher by 53 per cent.

Cement capex
The grinding capacity of 3.1 million tons at Kotputli (Rajasthan) is likely to be commissioned by the end of Q3 FY10. Upon its commissioning, the capacity of Grasim, together with that of UltraTech, will stand expanded at 48.8 million tons.

An overall capital outlay of Rs. 4,150 crore has been earmarked for the cement business (including an outlay of Rs. 2,055 crore at UltraTech). This is proposed to be invested over the next three years on grinding and evacuation facility, logistics infrastructure, waste heat recovery system, captive thermal power plant, modernization and completion of existing projects.

Cement outlook
Industry demand is expected to grow at around 9 per cent p.a. during the next five years, given the Government’s initiatives to boost rural development, infrastructure and housing. The long term outlook is promising, even though the surplus caused by new cement capacities is likely to impact margins over the immediate term. The company’s focus on higher volume growth, captive power generation and capital productivity should help in partially offsetting the impact on margins.

Viscose staple fibre (VSF) business
The performance of VSF business has been notable. Capacity utilisation stood at 92 per cent. Consequently, production was up by 22 per cent at 76,669 tons, though the Nagda plant was shut for eight days during the quarter owing to water shortage.

Signs of revival in the global textile markets augur well for the VSF business.

The company plans to set up a 80,000 tpa VSF plant at Vilayat (Gujarat) at an estimated investment of Rs. 1,000 crore. The company has already acquired land and received environmental clearances for the project. Upon commissioning of the plant in FY13, Grasim’s VSF capacity will stand enhanced at 413,975 tons.

Chemical plant
The chemical business’ performance was satisfactory. Caustic volumes improved by 11 per cent due to aggressive marketing. Lower ECU realisations emanating from lower caustic and byproduct prices, however, led to lower operating margins. Realisations are expected to remain under pressure due to the commissioning of new capacities and cheap imports. However, the recovery in the economy is expected to translate into better performance of the business in the long term.

Cement demerger
As already reported, Grasim has embarked on a restructuring exercise under which the cement business of the company will be demerged into Samruddhi Cement Ltd. (Samruddhi), a wholly owned subsidiary of the company. In consideration, Samruddhi will issue 1 (one) new equity share of the face value of Rs. 5/-, credited as fully paid up, to Grasim’s shareholders for every equity share they hold in Grasim as of the Record Date, in addition to the shares held by them in Grasim. Upon such issue, the shareholding of Grasim in Samruddhi will get diluted to 65 per cent.

This move is designed to ensure Grasim’s majority stake in, and continued support to, the rapidly growing cement business, while simultaneously providing Grasim’s shareholders a direct participation in a pure play cement company.

The demerger will be undertaken through a scheme of arrangement under Sections 391-394 of the Companies Act, 1956, subject to the applicable approvals, inter alia from the company’s shareholders and creditors and the High Courts of Madhya Pradesh and Gujarat.

Outlook
The company’s thrust will be on fortifying its leadership position in the cement and VSF sectors. Even after the demerger, the company will continue to provide all support to the cement business, in the same manner as is being given prior to the demerger. Cost optimisation and maximisation of asset productivity will continue to be the company’s hallmarks. The prospects for the company thus remain positive.