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1QFY12 results
Grasim’s 1Q standalone Ebitda came slightly below our estimates due lower than
expected VSF performance; net earnings however came 11% ahead of estimates
at Rs3.1bn (+40%), thanks to higher other income, lower tax rates. VSF business
registered ~19% decline in volumes to an 11-quarter low of 55k tons even while,
realisations and Ebitda margins averaged at an all time high. Management expects
near-term pressures in both cement and VSF businesses. We may look to revise
our earning estimates post the management conference call at 0900 IST today.
1Q operating performance slightly below; net earnings ahead
q Grasim’s 1Q standalone Ebitda rose 17% YoY to Rs3.5bn, slightly lower than our
estimates due to lower than expected VSF performance.
q Net earnings at Rs3.1bn rose 40% and were 11% ahead, thanks to higher other
income (+70%) and lower tax rate (23% cf. 27% in 1QFY11).
q Grasim’s 1Q consol. net earnings rose by a strong 31% YoY to Rs7.5bn.
VSF volumes contract sharply; weak management outlook
q VSF business came under pressure as sale volumes declined 19% YoY to 55k tons,
the lowest in the last 11 quarters which was due to de-stocking in the value chain
due to price corrections (in VSF as well as competing fibers).
q China VSF industry too has been experiencing turmoil as the industry utilizations
are down to 60%; players have been incurring cash losses, though, initial signs of
stabilization are visible now.
q Grasim’s VSF realisations at Rs152/kg in 1Q were at an all time high (+5% QoQ)
on the back of which, margins rose to highest ever level of Rs64/kg.
q Management however expects margins to contract in the near term due to
correction in prices of competing fibre.
Capacity pressures to continue in the cement business
q Grasim’s 60%-sub, UltraTech reported ~19% rise in Ebitda in 1Q driven by higher
realisations even while volumes continued to remain weak.
q The management expects a pick up in cement demand in 2H, though, capacity
surpluses are likely to continue for the next 2-3 years.
q Cement prices too have come under pressure with the on-set of monsoons and
costs are likely to stay firm due to rising commodity prices which would keep
margins under pressure.
High capex focus for all the businesses
q The group has aggressive expansion projects; Grasim plans to spend US$750m on
VSF business to add ~50% capacity by FY13.
q In UltraTech, it plans to add 9mt capacity (east, south) which would entail
US$2.4bn of capex; the civil work has begun at both the sites.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 results
Grasim’s 1Q standalone Ebitda came slightly below our estimates due lower than
expected VSF performance; net earnings however came 11% ahead of estimates
at Rs3.1bn (+40%), thanks to higher other income, lower tax rates. VSF business
registered ~19% decline in volumes to an 11-quarter low of 55k tons even while,
realisations and Ebitda margins averaged at an all time high. Management expects
near-term pressures in both cement and VSF businesses. We may look to revise
our earning estimates post the management conference call at 0900 IST today.
1Q operating performance slightly below; net earnings ahead
q Grasim’s 1Q standalone Ebitda rose 17% YoY to Rs3.5bn, slightly lower than our
estimates due to lower than expected VSF performance.
q Net earnings at Rs3.1bn rose 40% and were 11% ahead, thanks to higher other
income (+70%) and lower tax rate (23% cf. 27% in 1QFY11).
q Grasim’s 1Q consol. net earnings rose by a strong 31% YoY to Rs7.5bn.
VSF volumes contract sharply; weak management outlook
q VSF business came under pressure as sale volumes declined 19% YoY to 55k tons,
the lowest in the last 11 quarters which was due to de-stocking in the value chain
due to price corrections (in VSF as well as competing fibers).
q China VSF industry too has been experiencing turmoil as the industry utilizations
are down to 60%; players have been incurring cash losses, though, initial signs of
stabilization are visible now.
q Grasim’s VSF realisations at Rs152/kg in 1Q were at an all time high (+5% QoQ)
on the back of which, margins rose to highest ever level of Rs64/kg.
q Management however expects margins to contract in the near term due to
correction in prices of competing fibre.
Capacity pressures to continue in the cement business
q Grasim’s 60%-sub, UltraTech reported ~19% rise in Ebitda in 1Q driven by higher
realisations even while volumes continued to remain weak.
q The management expects a pick up in cement demand in 2H, though, capacity
surpluses are likely to continue for the next 2-3 years.
q Cement prices too have come under pressure with the on-set of monsoons and
costs are likely to stay firm due to rising commodity prices which would keep
margins under pressure.
High capex focus for all the businesses
q The group has aggressive expansion projects; Grasim plans to spend US$750m on
VSF business to add ~50% capacity by FY13.
q In UltraTech, it plans to add 9mt capacity (east, south) which would entail
US$2.4bn of capex; the civil work has begun at both the sites.
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