Grasim Industries Limited a Cement and VSF Major Cautionary Statement
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Performance Review Quarter 3 : 2010-11 Grasim Industries Limited A Cement and VSF Major Cautionary Statement Statements in this “Presentation” describing the Company’s objectives, estimates, expectations or predictions may be “forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include global and Indian demand supply conditions, finished goods prices, feedstock availability and prices, cyclical demand and pricing in the Company’s principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts business and other factors such as litigation and labour negotiations. The Company assumes no resppyonsibility to ppyublicly amend, modify or revise any forward looking statement, on the basis of any subsequent development, information or events, or otherwise. 2 Contents z Highlights z Business Review z Financial Performance z Capex Plan z Summary 3 Highlights – Quarter 3 z Consolidated results have shown improvement after sharp dip in Quarter 2 z VSF business continued to post excellent performance ¾ Plants are running at full capacity ¾ Firm trend in realisations - strong demand and rising prices of competing fibres ¾ Sharper run in input costs affected the margins ¾ Pulp JVs continued to perform well z In Cement business ¾ Overcapacity in the industry continues to affect realisations and margins ¾ Industry witnessed lower demand growth in the quarter ¾ Realisations have improved post monsoons after decline in Q2 at unrealistic levels z Highest ever caustic soda volumes in Chemical business ¾ ECU realisation increased led by higher chlorine and HCL prices z Continue to pursue aggressive growth plans to maintain momentum in both businesses 4 Business Review VSF Chemical Cement Subsidiary 5 Viscose Staple Fibre : Highlights Global Industry Scenario Quarter – 3 % Chg. z Strong demand for VSF with 2010-11 2009-10 ¾ Shortage of cotton Capacity (TPA) 333,975 333,975 --- ¾ General revival of textile industry Production (MT) 83,026 81,991 1 z As a result, VSF prices continued to rise supported by Sales Volumes (MT) 84,621 81,306 4 ¾ Rising spot prices of pulp leading to higher Net Revenue (Rs. Crs.) 1,129.3 962.4 17 VSF prices in China ¾ Realisation (Rs./MT) 123,060 109,600 12 Increase in PSF prices Business performance 1300 $ / Ton 1170 1140 z Plants running at full capacity 1060 1100 910 935 z Net revenue up by 17% 860 900 765 684 685 ¾ Sales volumes increase by 4% 700 ¾ Realisations improve by 12% 500 o However, input costs increased sharply and 300 could not be passed on fully 100 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 o Pulp cost up 35%, Sulphur cost up Rising Imported Pulp Prices 119%, Energy cost up 17% 6 Viscose Staple Fibre : Highlights (Contd….) Quarter – 3 z Highest ever consolidated PBIDT despite % Chg. 2010-11 2009-10 marginal reduction in standalone results PBIDT (Rs. Crs.) 388.6 403.7 (4) ¾ On Standalone basis, Q3 last year have PBIDT Margin (%) 34.3% 41.8% -- shown high profits supported by lower PBIT (Rs. Crs.) 361.8 375.3 (4) input and energy prices ROAvCE % 84.4% 87.8% -- ¾ Pulp JV’s PBIDT up from Rs.6 Crs. to Joint Ventures – Grasim’s share Rs.42 Crs. Net Revenue (Rs. Crs) 218.9 147.3 49 ¾ China fibre JV back to profitability after PBIDT (Rs. Crs.) 44.8 9.9 -- losses in first half Consolidated PBIDT* 428.3 418.6 2 Consolidated PBIDT Margin % 32.6% 39.7% -- * Net of inter company eliminations 7 Viscose Staple Fibre : Outlook z VSF demand will continue to grow in long term ¾ Textile consumption in India is increasing with growth in population and standard of living ¾ Usage of VSF in various allied applications like Non Woven etc. globally z Besides growth, trends in China as well as prices of competing fibres and pulp will govern margins ¾ Firm price trend expected going forward in line with competing fibres, but with volatility z Efforts on product innovation and application development to further intensify ¾ Vilayat project to focus on specialty fibres z Business focus on long term demand growth and profitability z VSF expansion plan: ¾ Greenfield project of 120,000 tons at Vilayat, Gujarat at a cost of Rs.1,690 Crores ¾ Brownfield expansion of 36,500 tons at Harihar and plant upgradation, at a cost of Rs.449 Crores ¾ Projects expected to be commissioned in FY13 8 Chemical : Highlights Quarter -3 Industry Scenario % Chg. 2010-11 2009-10 z Improvement in caustic prices in Caustic Capacity (TPA) 258,000 258,000 - international markets Production (MT) 66,917 60,591 10 z Demand from major end user industry Sales Volumes (MT) 67,136 61,326 9 showed growth signal Net Revenue (Rs. Crs.) 147.5 121.3 22 Business Performance z ECU Realisation (Rs./MT) 18,125 16,465 10 Achieved highest ever production and sales PBIDT (Rs. Crs.) 31.4 28.3 11 volume aided by capacity utilisation of PBIDT Margin (%) 21.3% 23.3% -- 104% z Despite dip on sequential basis, ECU PBIT (Rs. Crs.) 22.9 20.3 13 realisation up by 10% ROAvCE % 22.2% 22.0% -- ¾ Increase in chlorine and HCL prices helped Caustic Volumes & ECU Realisation 70000 26000 z Operating profit up by 11% despite higher 60000 22000 energy cost 50000 Outlook 18000 40000 z Caustic demand outlook positive with 14000 30000 increased offtake from Aluminium industry 20000 10000 z 182,500 tonnes caustic capacity with 60 MW Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 power plant being set up at Vilayat for Caustic Sales Vol. ECU Realisation captive use at cost of Rs.772 Crs. 9 Cement : Industry Scenario Zone wise Industry Growth Rate (YoY) z Overcapacity continues to impact industry Growth % 25 24 ¾ Against annual installed capacity of 290 Mn. 20 Tons, quarterly dispatches were 51 Mn. Tons 15 13 z Industry recorded only 2% growth in the 12 12 11 11 9 9 10 8 Quarter 5 5 4 ¾ Prolonged monsoon 5 2 -1 -11 ¾ Bottleneck in availability of construction 0 North East West South India inputs QQ/3/10 QQ/2/11 QQ/3/11 SCptitSource: Company estimate ¾ Lower spending on realty and infrastructure 4000 Cement Realisation Trend Rs./Ton spending ¾ Political instability in AP, Karnataka & 3,432 3,356 3,330 3,279 Gujjar agitation in North 3,021 3000 z Partial recovery in prices, after sharp and unrealistic decline in monsoons ¾ Increase in South and West but decline in North and East 2000 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 z Continued pressure on cost ¾ Increase in coal prices and railway freight 10 Cement : Highlights z Quarter -3 Total capacity up by 13% on YoY basis % Chg. 2010-11 2009-10 ¾ New 3 Mn. TPA grinding capacity was added Grey Cement Capacity Mn. TPA 51.75 45.65 13 in March 10 at Kotputli (7% YoY) - Domestic 48.75 45.65 7 ¾ Acquisition of 3 Mn. TPA Star Cement - Star Cement 3.00 - - completed in Sep. 10 (6%YoY) Production 10.07 9.00 12 - Domestic Mn. MT 9.31 9.00 3 z Production increased by 12% - Star Cement * 0.76 - - ¾ Acquisition of Star cement contributed 0.76 $ Cement Sales Volumes Mn. MT 10.08 9.17 10 Mn. MT, capacity utilisation at ~ 80% despite - Cement (Incl. Exports) 9.34 9.17 2 - Star Cement 0.75 - - challenging environment in Middle East Clinker Sales Volumes 0.46 0.58 (20) ¾ Domestic production up by 3% White Cement Production MT 147,228 137,523 7 z Sales volume up by 2% in line with industry $$ Sales Volumes MT 143,602 130,188 10 z Total sales volume (including Star Cement) * Since date of transfer of control to UltraTech $ Includes captive consumption for RMC up by 10% $$ Includes captive consumption for value added products z White cement achieves utilisation of 106%, Sales volume up by 10% z Putty records volume growth of 35% 11 Cement : Financials z Quarter -3 Domestic realisations were down by 2% % Chg. 2010-11 2009-10 z Net Revenue up by 9% Realisation Rs. /MT ¾ Addition of Star Cement - Domestic Cement 3,279 3,330 (2) ¾ White Cement revenue up by 24% - Clinker 1,765 1,512 17 - Star Cement 2,491 - - z Operating profit down from Rs.1,024 Crs. - White Cement 8,677 8,283 5 to Rs.774 Crs. Net Revenue Rs. Crs. 3,949 3,638 9 ¾ Higher energy costs, up by 26% - Cement 3,489 3,422 2 ¾ Lower realisations - White Cement 269 216 24 ¾ Overheads up as a results of higher - Star Cement * 191 - - activities and general rise in cost PBIDT Rs. Crs. 774 1,024 (24) z However, sequentially PBIDT improved PBIDT Margin % 19.5% 28.0% - from Rs.478 Crs. to Rs.774 Crs. PBIT Rs. Crs. 529 820 (36) ¾ Higher volumes and improvement in ROAvCE % 11.6 21.1 - * Since date of transfer of control to UltraTech realisation in South and West z Star Cement showed positive PBIDT, however loss of Rs.27 Crs. at PAT level 12 Cement : Outlook z Cement Demand expected to grow at 10% over long term linked to ¾ Govt. initiative to boost infrastructure spending ¾ Rural demand emanating from agricultural growth ¾ Revival in corporate capex cycle to boost demand ¾ Growth rate can decline in short term if the present market conditions continue going forward z Margins to return gradually back to normalcy sometime in FY’13 z Continued focus on consolidating gains from current capacity ¾ Higher capacity utilisation of new plants to give additional volumes ¾ Optimizing logistics cost with investment in bulk terminals z Focus on achieving accelerated profitable growth and improve market share ¾ Brownfield expansions aggregating 9.2 Mn.