A favourable business environment for cement helped Grasim Industries deliver healthy growth in net profits in Q2.

But lower sales in its viscose staple fiber (VSF) pision negated the positives from the cement pision.

In the September quarter, it reported an impressive 53 per cent Y-o-Y growth in net profits. Grasim primarily operates in three pisions — cement, VSF and chemicals.

In the September quarter, the cement pision contributed 74 per cent to its total revenues while VSF and chemicals contributed 20 per cent and 3 per cent, respectively.

The cement pision benefited from lower coal prices and improved realisations. Although its production increased by just 1 per cent, a 19 per cent increase in cement prices led to a 20 per cent rise in net sales.

Average global coal prices were 28 per cent lower from the same quarter last year. But rupee depreciation and higher freight costs partially offset the benefits of lower coal prices.

As aresult, the cement pision’s EBIDTA margins improved by 600 bps. The production in its VSF pision was lower by 4 per cent due to water shortage, leading to temporary shutdown in one of its plants.

In spite of lower production, weaker rupee led to an 8 per cent jump in its revenues from this segment. But a rise in caustic soda and sulphur prices led to an 18 per cent fall in EBIDTA to Rs 251 crore.

The company is ramping up its capacity by 1,64,000 tonnes. In the short term, the company may see a flat growth in realisations due to the global a slowdown.

At the current market price of Rs 3,320, its cement business is valued at $175 per tonne. This is in line with the valuation of top cement companies.

The market price factors in the positive outlook for the industry. However, due to capacity expansion and cost leadership in its VSF business, the company’s revenues from this pision are likely to improve. This would be the next growth driver.