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Grasim's 52% EBITDA growth reflected the buoyant conditions in the VSF business. Despite
being constrained for capacity till mid-FY13, we believe VSF business can deliver a volume
growth of 7-8% in FY12. It is strengthening its VSF business by investments in pulp, and the 50%
capacity expansion plan in VSF
19% sales growth driven by all business segments
Consolidated net sales grew 19% yoy to Rs63.9bn in 4Q11, mainly due to strong growth in
the VSF business. Cement sales grew 14% yoy to Rs47.6bn. The VSF division registered a
growth of 34% yoy to Rs15.3bn. Standalone net sales grew 29% yoy to Rs14.3bn in 4Q11.
On a standalone basis, VSF sales grew 27% yoy to Rs13.3bn in 4Q11 driven by higher
realisations. Sales volume remained flat at 85,650mt in 4Q11 (vs 85,714mt in 4Q10). The
company achieved capacity utilisation of 99.3% in 4Q11. Realisations remained firm,
improving 29.8% yoy to Rs144,962/mt. Sequentially, realisation improved 17.8% qoq
(Rs123,060/tonne in 3Q11).
Standalone chemical sales grew 30% to Rs1.6bn in 4Q11 led by good demand from end-user
industries. Sales volume grew 14.5% yoy to 68,253mt. Realisation went up 13% yoy and 4%
qoq to Rs18,882/mt in 4Q11 on higher chlorine and HCL prices.
Strong EBITDA growth of 14% consolidated and 52% at standalone level
Consolidated EBITDA grew 14% yoy to Rs15.4bn in 4Q11. EBITDA margin contracted 89bp
yoy to 24.1%. However, EBITDA margin improved 326bp sequentially, driven by a 204bp
reduction in power and fuel costs as a percentage of sales.
On a standalone basis, EBITDA grew 52% yoy to Rs4.6bn in 4Q11. EBITDA margin
expanded from 27.5% in 4Q10 to 32.4% in 4Q11. Expansion in EBITDA margin of 488bp was
mainly driven by a 194bp reduction in employee costs as a percentage of sales (4.7% in
4Q11) and a 225bp fall in the other expenses as a percentage of sales (8.4% in 4Q11). Raw
material costs as a percentage of sales increased 44bp yoy to 43.7% in 4Q11. EBITDA for
VSF (standalone) grew 41.4% yoy to Rs5.1bn. EBITDA margin came in at 38.4%
Outlook intact with growth drivers in place.
Viscose staple fibre business: To strengthen its captive supply of pulp ( the raw material for
VSF production) , the company plans to acquire a stake in Domsjo by picking up a one-third
stake in the Aditya Holding AB, Sweden. This will help the company procure high-quality pulp
internally. Domsjo's current pulp capacity is 2,10,000 tonnes and Grasim is expected to get
33% of this. The company is also looking at strategic tie ups or acquisitions. The
management has assured that VSF's expansion plans for Vilayat and Harihar are on track
and expected to be commissioned in Sep 2012 (Harihar plant) and Dec 2012 (Vilayat plant),
which will raise its VSF capacity by 50%.
On VSF pricing, the management indicated that VSF prices remained volatile in the past
quarter. VSF prices went up to US$3.75/kg and averaged US$3.3/kg in 4Q11 with the current
price in the international market at around US$3/kg.
Cement business: Cement demand in the North and South is improving but the company
witnessed de-growth in the northern states like Delhi (-7.3%), Haryana and Himachal Pradesh
(-12%). A similar trend was seen in the southern states like Andhra Pradesh (-13%) and
Karnataka (-1%). Overall, the company is expecting demand growth of more than 8.5% in
FY12. Its recently acquired business of Star Cement's (in Middle East) did a sales for the
quarter of Rs1.81bn, with the utilisation level at 92%. EBITDA stood at Rs0.8bn.
CAPEX: The company announced capex estimates of Rs.143.6bn for the next three years.
Out of this, Rs24.3bn is for VSF expansions in Vilayat and Harihar. The cement business'
capex estimate for expansion in Raipur and Malkhed is Rs51.49bn and total capex expected
is Rs110bn.
Valuation: Despite our cautious view on cement business due to risk to cement margins, we
believe Grasim at its current valuations provides upside. The stock trades at PER of 10x
FY12 and 8.7x FY13 is cheap for the volume driven growth expectations we are building in.
There could be positive surprise to our current EPS estimates if margins surprise compared to
34.6% in 4Q10. On a sequential basis, margin expanded by 400bp from 34.4% in 3Q10.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Grasim's 52% EBITDA growth reflected the buoyant conditions in the VSF business. Despite
being constrained for capacity till mid-FY13, we believe VSF business can deliver a volume
growth of 7-8% in FY12. It is strengthening its VSF business by investments in pulp, and the 50%
capacity expansion plan in VSF
19% sales growth driven by all business segments
Consolidated net sales grew 19% yoy to Rs63.9bn in 4Q11, mainly due to strong growth in
the VSF business. Cement sales grew 14% yoy to Rs47.6bn. The VSF division registered a
growth of 34% yoy to Rs15.3bn. Standalone net sales grew 29% yoy to Rs14.3bn in 4Q11.
On a standalone basis, VSF sales grew 27% yoy to Rs13.3bn in 4Q11 driven by higher
realisations. Sales volume remained flat at 85,650mt in 4Q11 (vs 85,714mt in 4Q10). The
company achieved capacity utilisation of 99.3% in 4Q11. Realisations remained firm,
improving 29.8% yoy to Rs144,962/mt. Sequentially, realisation improved 17.8% qoq
(Rs123,060/tonne in 3Q11).
Standalone chemical sales grew 30% to Rs1.6bn in 4Q11 led by good demand from end-user
industries. Sales volume grew 14.5% yoy to 68,253mt. Realisation went up 13% yoy and 4%
qoq to Rs18,882/mt in 4Q11 on higher chlorine and HCL prices.
Strong EBITDA growth of 14% consolidated and 52% at standalone level
Consolidated EBITDA grew 14% yoy to Rs15.4bn in 4Q11. EBITDA margin contracted 89bp
yoy to 24.1%. However, EBITDA margin improved 326bp sequentially, driven by a 204bp
reduction in power and fuel costs as a percentage of sales.
On a standalone basis, EBITDA grew 52% yoy to Rs4.6bn in 4Q11. EBITDA margin
expanded from 27.5% in 4Q10 to 32.4% in 4Q11. Expansion in EBITDA margin of 488bp was
mainly driven by a 194bp reduction in employee costs as a percentage of sales (4.7% in
4Q11) and a 225bp fall in the other expenses as a percentage of sales (8.4% in 4Q11). Raw
material costs as a percentage of sales increased 44bp yoy to 43.7% in 4Q11. EBITDA for
VSF (standalone) grew 41.4% yoy to Rs5.1bn. EBITDA margin came in at 38.4%
Outlook intact with growth drivers in place.
Viscose staple fibre business: To strengthen its captive supply of pulp ( the raw material for
VSF production) , the company plans to acquire a stake in Domsjo by picking up a one-third
stake in the Aditya Holding AB, Sweden. This will help the company procure high-quality pulp
internally. Domsjo's current pulp capacity is 2,10,000 tonnes and Grasim is expected to get
33% of this. The company is also looking at strategic tie ups or acquisitions. The
management has assured that VSF's expansion plans for Vilayat and Harihar are on track
and expected to be commissioned in Sep 2012 (Harihar plant) and Dec 2012 (Vilayat plant),
which will raise its VSF capacity by 50%.
On VSF pricing, the management indicated that VSF prices remained volatile in the past
quarter. VSF prices went up to US$3.75/kg and averaged US$3.3/kg in 4Q11 with the current
price in the international market at around US$3/kg.
Cement business: Cement demand in the North and South is improving but the company
witnessed de-growth in the northern states like Delhi (-7.3%), Haryana and Himachal Pradesh
(-12%). A similar trend was seen in the southern states like Andhra Pradesh (-13%) and
Karnataka (-1%). Overall, the company is expecting demand growth of more than 8.5% in
FY12. Its recently acquired business of Star Cement's (in Middle East) did a sales for the
quarter of Rs1.81bn, with the utilisation level at 92%. EBITDA stood at Rs0.8bn.
CAPEX: The company announced capex estimates of Rs.143.6bn for the next three years.
Out of this, Rs24.3bn is for VSF expansions in Vilayat and Harihar. The cement business'
capex estimate for expansion in Raipur and Malkhed is Rs51.49bn and total capex expected
is Rs110bn.
Valuation: Despite our cautious view on cement business due to risk to cement margins, we
believe Grasim at its current valuations provides upside. The stock trades at PER of 10x
FY12 and 8.7x FY13 is cheap for the volume driven growth expectations we are building in.
There could be positive surprise to our current EPS estimates if margins surprise compared to
34.6% in 4Q10. On a sequential basis, margin expanded by 400bp from 34.4% in 3Q10.
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