Net sales dropped marginally to Rs 1,761.48 crore from Rs 1,765.69 crore reported in the first half of 1997-98. According to the company, sales of cement and sponge iron have been lower in the second quarter on account of the continued slowdown in the economy. Sales of cement dropped 7.3 per cent, while those of sponge iron declined by 37.3 per cent.

With price realisation being lower in most of the commodity businesses that the company is in, margins have been under pressure. Grasim has said that the net profit has fallen due to lower other income, which declined to Rs 36.05 crore from Rs 51.11 crore, and higher depreciation on account of commissioning of the new viscose staple fibre plant.

Depreciation jumped to Rs 90.63 crore from Rs 74.41 crore. Interest burdenfell to Rs 129.47 crore from Rs 135.23 crore in the same period last year. Grasim has provided for a tax of Rs 13.5 crore in the first half against Rs 21.25 crore last year.

In the first half, production and sales of both cement and sponge declined substantially. While production of cement dropped to 1.96 million tonne from 2.11 million tonne -- a drop of 6.9 per cent -- sales declined to 1.99 million tonne from 2.15 million tonne, a fall of 7.3 per cent.

Sponge iron production declined by 11 per cent to 3.07 lakh tonne from 3.45 lakh tonne, while sales fell by 37.3 per cent to 2.41 lakh tonne from 3.85 lakh tonne.

The ex-factory realisations of sponge iron were also lower by 0.8 per cent, while those of cement and VSF increased by a mere 2.3 per cent.

As part of a plan to turn Grasim into a cement powerhouse, the Aditya Birla group has, over the last seven months, acquired Dharani Cements in south India and Shree Digvijay Cement in Gujarat.

The cement division of Indian Rayon will also betransferred to Grasim, subject to the approval of the courts. This will be reflected in Grasim's performance only at the end of the financial year.

Most of Grasim's plants are "efficient and cost effective". "No sooner the economy upturns, the plants will be able to operate at full volumes and the cost effectiveness achieved will bring an upsurge in profits," the company said.

Insight

Second half seen flat: Compared with the first quarter, the operating profit margin in the second quarter is lower by 2 percentage points. Quarter-to-quarter comparison is not possible as figures have not been provided by the management. Even the first quarter results had no quarter-to-quarter comparison. Net profit on a half-to-half basis is lower by 20 per cent, and according to the management, one of the factors responsible is lower "other income".

The cement division expectedly had lower despatches and lower realisation. The realisation in sponge iron was flat but volumes were lower by 37 per cent.Cement will hardly show any improvement in the second half due to the location of Grasim's plants. Earnings from VSF are also expected to remain flat. The second half is unlikely to result in any improvement in the bottomline.