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S. Vaidya Nathan

RIDING the crest of rising cement prices in the first six months, higher cement volumes through the year, lower interest costs and a tight rein on operational costs, Grasim Industries has managed to close fiscal 2001-02 with a 4.3 per cent growth in sustainable earnings.

There has been an improvement of around 1.80 percentage points in the operating profit margins, indicating better cost efficiencies.

The showing for the year is despite a 9.3 per cent decline in sales. The sales decline follows the general sluggishness affecting its textiles, sponge iron and chemicals businesses through the year, cement in the second half of the year and sale of textile business in Gwalior.

Despite the growth in sustainable profits in 2001-02, the performance cannot but be of some concern. Almost the entire growth in profits has been on account of a strong showing by the cement business in the first two quarters of 2001-02 when cement prices were substantially higher than in the same period of the preceding year.

In sharp contrast, in the third-quarter, and especially the fourth-quarter, the performance has taken quite a knock. The January - March earnings are down 4 per cent due to the sharp fall in cement prices in some key markets in the West and North and continued sluggishness in other businesses.

This sharp fall is despite volume growth in cement that has been in the 10 per cent to 15 per cent range in this period.

Going forward, the immediate preceding two quarters' performance is of greater relevance as it is reflective of the tough business conditions.

There are no signs that these are about to change, though cement prices may move away from the trend of a sharp decline in the last three months.

But any spurt is unlikely as the big players such as ACC, Gujarat Ambuja and L&T are now in the game of pushing volumes and grabbing market share as they have fresh capacities.

This could cloud the performance in the next two quarters with the monsoon also likely to affect volumes. It is unlikely that there will be a repeat of last year's high prices in the first half of 2002-03. As far as other businesses go, the outlook for sponge iron does not look encouraging given the sluggishness in the steel industry and weak price trends.

The VSF business may also find its profitability under strain given the trends in cotton prices and the slowdown in the economy which has affected purchasing power.

Perhaps, the more encouraging and significant factors from a medium- to long-term perspective are not in the revenues or earnings numbers, but in the following aspects:

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