Grasim Industries Q1 Preview: Net loss may widen to Rs 309 crore amid paints, VSF pressure. 5 things to watch out for

Grasim Industries is expected to report a widened net loss in Q1 despite robust revenue growth of over 30% year-on-year. Brokerages anticipate weak profitability due to continued losses in new-age verticals like paints and B2B e-commerce, as well as soft margins in its core viscose fibre business. While the chemical segment shows marginal improvement, analysts remain cautious about margin pressure and cost headwinds.

The estimates of Kotak Institutional Equities, ICICI Securities and Antique Stock Broking have been taken into consideration.

Here’s what they recommended:

PAT

– Kotak Equities expects standalone net loss to widen to Rs 309 crore versus Rs 52 crore loss in the year ago period, citing weak VSF performance and ongoing losses in the paints division.

– Antique Stock Broking pegs the net loss at Rs 178 crore.

– ICICI Securities forecasts a net loss of Rs 254 crore, driven by margin pressures and expansion-related costs.Brokerages said that bottom-line pressure is likely to persist, primarily due to sustained losses in new businesses and subdued operating leverage in core verticals. Kotak highlights a drag from the VSF segment, while ICICI points to B2B and paints-related expenses as margin eroders.

Revenue

– Kotak Equities: Rs 9,195 crore (+33% YoY, +3% QoQ)

– Antique Stock Broking: Rs 9,111 crore (+32.2% YoY, +2.1% QoQ)

– ICICI Securities: Rs 8,965 crore (+30% YoY, +0.4% QoQ)

Revenue growth is expected to remain robust across the board, supported by solid traction in the chemicals segment and healthy top-line growth in the building materials division. Kotak highlights a 0.5% QoQ rise in chemical volumes, while ICICI sees the paints and B2B e-commerce segment contributing Rs 2,200 crore, though flattish sequentially.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) growth remains weak on a YoY basis due to lower profitability in VSF and persistent startup costs in new ventures. However, sequential improvements are visible across estimates. Kotak attributes the QoQ gain to cost optimization and slight demand uptick in chemicals.

– Kotak Equities: Rs 245 crore (-24.7% YoY, +11% QoQ)

– Antique Stock Broking: Rs 270 crore (-17% YoY, +22.4% QoQ)

– ICICI Securities: Rs 255 crore (-21.6% YoY, +15.5% QoQ)

“We estimate standalone EBITDA of Rs 2.4 bn including (1) VSF EBITDA of Rs 2.6 bn (-35% yoy, -10.4% QoQ) on lower prices, (2) chemicals EBITDA of Rs 3.1 bn (+4.3% YoY, +0.6% QoQ) on gradual recovery in domestic demand and marginally lower costs, and (3) sustained level of losses in paints division with robust revenue growth,” Kotak said in a preview note.

EBITDA margin

– Kotak Equities: 2.7%, down 206 bps YoY, up 19 bps QoQ

– ICICI Securities: 2.8%, down 187 bps YoY, up 37 bps QoQ

“For Grasim Industries, EBITDA margins are likely to inch up 40bps QoQ (though on a YoY basis, it may still be a drop of 190bps owing to estimated losses for new businesses such as paints and b2b e-commerce segment). We estimate the revenue for the building materials segment (i.e. paints and b2b e-commerce, combined) at Rs 22bn being flat QoQ,” ICICI Securities said in a preview note.

Key monitorables

Among the key monitorables are performance and margin outlook for paints and B2B e-commerce, VSF pricing trend and volume recovery, demand momentum in chemicals and EBITDA contribution from new verticals

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)