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India Equity Research Reports, IPO and Stock News
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GRASIM INDUSTRIES
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.2710
FY12E P/E: 9.2X
q Demand scenario for VSF continues to remain strong
q VSF prices have witnessed further improvement led by higher prices of
competing fibres
q Cement prices started firming up since the beginning of Q4FY11
q We tweak our estimates to factor in higher VSF and cement realizations
and arrive at a revised price target of Rs 2710 on FY12 estimates (Rs 2530
earlier)
q We continue to remain positive on the company and maintain ACCUMULATE on the stock.
Key highlights about the meeting
VSF demand and pricing continues to remain strong
VSF demand as well as prices continued to remain strong during FY11 led by shortage of cotton as well as revival in the textile industry. VSF realizations have been on
an uptrend since the beginning of FY10. VSF prices have moved from Rs 97 per kg
in Q1FY10 to Rs 123 per kg for Q3FY11. Post recent price hikes seen in VSF due to
higher prices of cotton, VSF prices now stand nearly Rs 145-150 per kg. Cotton
prices historically have traded at a discount to VSF prices but shortage of cotton has
led to sharp increase in the cotton prices, much above the VSF prices. Thus, we
expect VSF prices to remain strong for next few quarters till the time we see meaningful increase in cotton acreage and inventory post the harvesting season.
We thus incorporate higher VSF prices in our estimates and expect revenues to grow
at a CAGR of 10% between FY10-FY12.
Improvement in cement prices witnessed since the beginning of
Q4FY11
Fall in the cement prices and continued cost pressures impacted Grasim's cement
division performance during 9MFY11 adversely. However, cement prices have seen
improvement of nearly Rs.60-70 per bag during Q4FY11 from Q3FY11 price levels.
Pricing discipline among cement manufacturers coupled with sharp decline in nontrade cement sales resulted in pushing up the average realizations. Inline with improvement in the cement prices seen in Q4FY11, we marginally tweak our estimates
for cement pricing
Capex schedule
In order to tap the growing demand of VSF and as well as improving VSF prices,
company has commenced capacity expansion. Grasim is expanding its VSF capacity
by setting up of Greenfield plant of 1,20,000 tons at Vilayat at a total cost of Rs 17
bn and browfield expansion of 36,500 tons at Harihar plant and plant upgradation at
a total cost of Rs 4.5 bn. For Cement division, company would be investing Rs 105
bn for expanding the capacity as well as for modernization and upgradation of existing units. These facilities are expected to commission from Q1FY14.
Financial outlook
n We fine tune our estimates for VSF and cement realizations in our estimates and
expect revenues to grow to Rs 207 bn and Rs 239 bn for FY11 and FY12 respectively.
n Even though pulp, sulphur and power costs continue to remain high, we expect
margins to improve in FY12 led by better pricing realizations seen in cement and
VSF. We thus expect margins to be 22% and 24% in FY11 and FY12 respectively.
n Post revising our revenue estimates upwards and also incorporating higher minority interest, our net profit estimates stand revised to Rs 20.5 bn and Rs 24.3 bn
for FY11 and FY12 respectively as against Rs 20.7 bn and Rs 21.8 bn earlier for
FY11 and FY12 respectively.
Valuation and recommendation
n At current market price of Rs 2436, stock is trading at 10.9x and 9.2x P/E and
4.6x and 3.5x EV/EBITDA for FY11 and FY12 respectively.
n We tweak our estimates to factor in higher VSF and cement realizations and
arrive at a revised price target of Rs 2710 on FY12 estimates (Rs 2530 earlier)
n We continue to remain positive on the company and maintain ACCUMULATE on
the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GRASIM INDUSTRIES
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.2710
FY12E P/E: 9.2X
q Demand scenario for VSF continues to remain strong
q VSF prices have witnessed further improvement led by higher prices of
competing fibres
q Cement prices started firming up since the beginning of Q4FY11
q We tweak our estimates to factor in higher VSF and cement realizations
and arrive at a revised price target of Rs 2710 on FY12 estimates (Rs 2530
earlier)
q We continue to remain positive on the company and maintain ACCUMULATE on the stock.
Key highlights about the meeting
VSF demand and pricing continues to remain strong
VSF demand as well as prices continued to remain strong during FY11 led by shortage of cotton as well as revival in the textile industry. VSF realizations have been on
an uptrend since the beginning of FY10. VSF prices have moved from Rs 97 per kg
in Q1FY10 to Rs 123 per kg for Q3FY11. Post recent price hikes seen in VSF due to
higher prices of cotton, VSF prices now stand nearly Rs 145-150 per kg. Cotton
prices historically have traded at a discount to VSF prices but shortage of cotton has
led to sharp increase in the cotton prices, much above the VSF prices. Thus, we
expect VSF prices to remain strong for next few quarters till the time we see meaningful increase in cotton acreage and inventory post the harvesting season.
We thus incorporate higher VSF prices in our estimates and expect revenues to grow
at a CAGR of 10% between FY10-FY12.
Improvement in cement prices witnessed since the beginning of
Q4FY11
Fall in the cement prices and continued cost pressures impacted Grasim's cement
division performance during 9MFY11 adversely. However, cement prices have seen
improvement of nearly Rs.60-70 per bag during Q4FY11 from Q3FY11 price levels.
Pricing discipline among cement manufacturers coupled with sharp decline in nontrade cement sales resulted in pushing up the average realizations. Inline with improvement in the cement prices seen in Q4FY11, we marginally tweak our estimates
for cement pricing
Capex schedule
In order to tap the growing demand of VSF and as well as improving VSF prices,
company has commenced capacity expansion. Grasim is expanding its VSF capacity
by setting up of Greenfield plant of 1,20,000 tons at Vilayat at a total cost of Rs 17
bn and browfield expansion of 36,500 tons at Harihar plant and plant upgradation at
a total cost of Rs 4.5 bn. For Cement division, company would be investing Rs 105
bn for expanding the capacity as well as for modernization and upgradation of existing units. These facilities are expected to commission from Q1FY14.
Financial outlook
n We fine tune our estimates for VSF and cement realizations in our estimates and
expect revenues to grow to Rs 207 bn and Rs 239 bn for FY11 and FY12 respectively.
n Even though pulp, sulphur and power costs continue to remain high, we expect
margins to improve in FY12 led by better pricing realizations seen in cement and
VSF. We thus expect margins to be 22% and 24% in FY11 and FY12 respectively.
n Post revising our revenue estimates upwards and also incorporating higher minority interest, our net profit estimates stand revised to Rs 20.5 bn and Rs 24.3 bn
for FY11 and FY12 respectively as against Rs 20.7 bn and Rs 21.8 bn earlier for
FY11 and FY12 respectively.
Valuation and recommendation
n At current market price of Rs 2436, stock is trading at 10.9x and 9.2x P/E and
4.6x and 3.5x EV/EBITDA for FY11 and FY12 respectively.
n We tweak our estimates to factor in higher VSF and cement realizations and
arrive at a revised price target of Rs 2710 on FY12 estimates (Rs 2530 earlier)
n We continue to remain positive on the company and maintain ACCUMULATE on
the stock.
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