The bottomline could have dipped even further but for the applicability of minimum alternate tax (MAT) resulting in the company paying only Rs 8 crore as taxes compared with Rs 45 crore in the previous fiscal.

Analysts, in the line with the company's explanation on the lacklustre performance, said Grasim's margins have been badly hit by poor demand and lower sales realisation in all its mainline businesses -- cement, sponge iron and textile and intermediaries.

Consequently, its turnover, net of excise, has declined 2.5 per cent to Rs 3,413.2 crore compared with Rs 3,499.89 crore in 1997-98. While sales realisations of sponge iron was down 7.8 per cent, that of viscose staple fibre dropped 0.9 per cent. Realisation of the cement division was marginally higher by 1.2 per cent.

On theNational Stock Exchange (NSE), Grasim shares jumped 3.16 per cent on Friday to Rs 117.50 a share with 2.23 lakh shares traded during the day.

Sales figures released by the company show that sales of all the three divisions was significantly lower last fiscal as compared with the previous fiscal, with that of the sponge-iron division being down 26.3 per cent, cement 7.8 per cent and VSF 4.1 per cent.

Company officials said that lower sales figures reflected poor demand due to the economic slowdown, while production had to be lower as demand did not pick up. Analysts said: "In such a situation, higher production would only have led to a higher inventory pile-up."

Grasim's operating profit was down 14.1 per cent during the 12 months at Rs 493.85 crore. A VRS programme offered by the company has knocked Rs 6.97 crore off the company's bottomline.

Other income during the year was also lower by 14.7 per cent at Rs 105.67 crore. Interest burden was higher by 2.6 per cent at Rs 262.26 crore compared with Rs255.67 crore. Depreciation provided for was also higher by 10 per cent at Rs 183.77 crore.

In an effort to improve margins of the VSF division in the current fiscal, the company has decided to place special thrust on export of speciality products like spun-dyed micro and macro-denier fibres. Company officials said that it will also strive at product development in end-users.

The VSF business has suffered primarily due to steep increase in cheaper import of blended textiles from south-east Asia coupled with a stagnant export market.

However, export of Grasim's finished textiles - from the Grasim Gwalior division and Vikram Woollens - has increased 250 per cent.

BOX

The AV Birla group has moved a step closer towards merging its cement business under flagship Grasim Industries, but not before the deadline it had earlier set.

The high courts of Ahmedabad and Indore have cleared the scheme of arrangement, but certain clearances are still awaited. Grasim officials had earlier said they hoped theproposed amalgamation would be complete effective from January 1999.

The boards of Grasim and Indian Rayon have now extended the deadline from March 31, 1999, by another three months till June 30.

Following the merger of the cement division of the two companies, Grasim will be the country's third-largest cement producer with a capacity of 10.6 million tonnes. It will also be India's largest white-cement producer.

Insight

Grim outlook

"Other income" has buoyed up Grasim's bottomline. In the last quarter of 1998-99, Grasim's other income amounted to Rs 51.71 crore, while PBT was Rs 35.54 crore. For 1997-98, other income accounted for almost 70 per cent of PBT. In 1998-99, the company paid tax at the rate of less than six per cent compared to 16.3 per cent in 1997-98. The operating profit in the fourth quarter of 1998-99, at 11.8 per cent, was the lowest during the year. The outlook for the businesses in which Grasim is in is not hopeful. The outlook for sponge iron is not bright.Polyester prices will continue to remain low and as a result will result in higher substitution for VSF. In cement too, prices are yet to show any firm upward trend. Although in 1998-99, the first quarter was the best quarter of the year for Grasim, the first quarter of 1999-2000 is unlikely to be as good.