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Grasim’s 3Q adjusted Ebitda declined 7% YoY to Rs3.6bn, in-line with our
estimates. VSF realisations rose to the highest ever level during 3Q,
though higher costs impacted margins. Current VSF prices are 6-7%
higher than 3Q average which should help earnings in coming quarters.
Consol. earnings were however impacted due to a 36% decline in
UltraTech’s earnings. While we have raised our standalone estimates by
8-10% over FY11-13CL, these are largely offset due to 6-11% cut in
UltraTech. Maintain Opf; revised target px: Rs2,700/sh.
Operating performance in-line; net earnings lower
Grasim’s standalone Ebitda (adjusted for cement de-merger) declined 7% YoY
to Rs3.6bn, in-line with estimates. Lower than expected other income and
higher tax rate however impacted as net earnings at Rs2.8bn missed our
estimates by 8%. Consol. earnings (pre-minority) however declined 22% YoY
due to sharp decline in UltraTech’s earnings (-36% YoY).
Highest ever VSF realisations in 3Q; 4Q would be even better
Strong trend continued in VSF realisations which rose 6% QoQ to the highest
ever level of Rs123/kg (+12% YoY) driven by strong demand trend and
continuing cotton shortages. We note that spot VSF prices have further
increased and we estimate current prices to be ~7% higher than 3Q average.
Volumes grew by a moderate 4% as Grasim has been operating plants at full
capacity. VSF Ebitda however declined 4% YoY due to higher unit costs
(+33%); we note that there has been a sharp increase in input costs like pulp
(+35%), sulphur (+120%+), energy (+17%).
Weak cement earnings; pressures likely to continue
Grasim’s consol. earnings were impacted due to weak performance by its
60% sub, UltraTech which reported a 36% decline in its earnings. UltraTech’s
volumes rose by a meagre 1% while its realisations declined 2% YoY. Despite
a sequential pick in cement prices led by producer discipline (and
seasonality), we expect pricing pressures to continue in the medium term. We
have also cut UltraTech’s EPS estimates by 6-11%.
Grasim remains our relative bet in the cement sector
We revise up our standalone estimates for Grasim by 8-10% over FY11-13CL
as we raise our VSF realisation estimates. These however get offset by
earnings cut in UltraTech and our consol. EPS estimates are largely the same.
While we are concerned on the cement sector fundamentals, we continue to
prefer Grasim on a relative basis as the stock builds in a 40%+ hold-co
discount to investments in listed equities (UltraTech, ABNL, L&T, Hindalco).
Maintain Opf and revise our target px to Rs2,700/sh.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Grasim’s 3Q adjusted Ebitda declined 7% YoY to Rs3.6bn, in-line with our
estimates. VSF realisations rose to the highest ever level during 3Q,
though higher costs impacted margins. Current VSF prices are 6-7%
higher than 3Q average which should help earnings in coming quarters.
Consol. earnings were however impacted due to a 36% decline in
UltraTech’s earnings. While we have raised our standalone estimates by
8-10% over FY11-13CL, these are largely offset due to 6-11% cut in
UltraTech. Maintain Opf; revised target px: Rs2,700/sh.
Operating performance in-line; net earnings lower
Grasim’s standalone Ebitda (adjusted for cement de-merger) declined 7% YoY
to Rs3.6bn, in-line with estimates. Lower than expected other income and
higher tax rate however impacted as net earnings at Rs2.8bn missed our
estimates by 8%. Consol. earnings (pre-minority) however declined 22% YoY
due to sharp decline in UltraTech’s earnings (-36% YoY).
Highest ever VSF realisations in 3Q; 4Q would be even better
Strong trend continued in VSF realisations which rose 6% QoQ to the highest
ever level of Rs123/kg (+12% YoY) driven by strong demand trend and
continuing cotton shortages. We note that spot VSF prices have further
increased and we estimate current prices to be ~7% higher than 3Q average.
Volumes grew by a moderate 4% as Grasim has been operating plants at full
capacity. VSF Ebitda however declined 4% YoY due to higher unit costs
(+33%); we note that there has been a sharp increase in input costs like pulp
(+35%), sulphur (+120%+), energy (+17%).
Weak cement earnings; pressures likely to continue
Grasim’s consol. earnings were impacted due to weak performance by its
60% sub, UltraTech which reported a 36% decline in its earnings. UltraTech’s
volumes rose by a meagre 1% while its realisations declined 2% YoY. Despite
a sequential pick in cement prices led by producer discipline (and
seasonality), we expect pricing pressures to continue in the medium term. We
have also cut UltraTech’s EPS estimates by 6-11%.
Grasim remains our relative bet in the cement sector
We revise up our standalone estimates for Grasim by 8-10% over FY11-13CL
as we raise our VSF realisation estimates. These however get offset by
earnings cut in UltraTech and our consol. EPS estimates are largely the same.
While we are concerned on the cement sector fundamentals, we continue to
prefer Grasim on a relative basis as the stock builds in a 40%+ hold-co
discount to investments in listed equities (UltraTech, ABNL, L&T, Hindalco).
Maintain Opf and revise our target px to Rs2,700/sh.
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