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Grasim's VSF EBITDA was in line and cement did better. Due to pricing pressure, both
businesses face margin pressure in the medium term. However, valuation at 5.2x EV/EBITDA for
FY12F offers comfort. Beyond cyclical pressures, both businesses are preparing for major
volume lead growth. Buy at declines
Robust sales growth driven by better than expected growth in cement
Consolidated net sales grew 16% yoy to Rs58.7bn in 1Q12, mainly due to strong growth in
the cement business. Cement sales grew 16% yoy to Rs46.2bn, led by higher realisations.
Ultra Tech’s average cements realisation improved by 6.6% on a qoq basis driven by better
pricing conditions in April and May 2011. The consolidated VSF division registered growth of
14% yoy to Rs11bn.
Standalone net sales grew 8% yoy to Rs10.2bn in 1Q12. On a standalone basis, VSF sales
grew 5% yoy to Rs9.0bn in 1Q12, driven by higher realisations. Sales volume declined 19%
yoy to 54,839mt in 1Q12 (from 67,302mt in 1Q11). Capacity utilisation for 1Q12 fell to 84% in
1Q12 (from 99% in 4Q11), affected by the suspension of production at Nagda plant for 27
days. Realisations remained firm, improving 29.3% yoy to Rs152,409/mt. Sequentially,
realisation improved 5.1% qoq (Rs144,962/tonne in 4Q11).
Standalone chemical sales grew 29% to Rs1.5bn in 1Q12 led by good demand from end-user
industries. Sales remained flat at 54,424mt in 1Q12 (vs 54,386mt in 1Q11). Realisation went
up 23% yoy and 20% qoq to Rs22,605/mt in 1Q12 on higher caustic prices.
Strong EBITDA growth of 21% consolidated and 17% at standalone level
Consolidated EBITDA grew 21% yoy to Rs15.8bn in 1Q12. EBITDA margin expanded 104bps
yoy to 26.8%, driven by 202bps reduction in freight costs as a percentage of sales.
Sequentially, margin improved 276bps from 24.1% in 4Q11, led by 417bps reduction in raw
material costs as a percentage of sales. Power and fuel costs as a percentage of sales
increased 183bps yoy and 295bps qoq to 22.1% in 1Q12.
On a standalone basis, EBITDA grew 17.2% yoy to Rs3.5bn in 1Q12. EBITDA margin
expanded 261bps yoy to 34.5% in 1Q12, driven by a 501bp reduction in raw material costs as
a percentage of sales (36.6% in 1Q12). Power and fuel costs as a percentage of sales
increased 231bps yoy and 372bps qoq to 13.5% in 1Q12. EBITDA for VSF (standalone) grew
15% yoy to Rs3.5bn. VSF EBITDA margin came in at 38.5% compared to 35.3% in 1Q11.
Strong capex plan
VSF expansion in Vilayat, Gujarat (120,000 TPA) and Harihar, Karnataka (36,500 TPA) are
on track with commissioning expected in FY13. Out of the total VSF capex of Rs24.5bn,
Rs21bn has been earmarked for expansion.
UltraTech Cement currently has a market share of 17% in terms of cement capacity, and to
sustain this level of market share it plans to add 25mmt of capacity over the next 5 years. It
has already started work on 9.2mmt of capacity expansion at its existing locations at
Chhattisgarh and Karnataka along with captive power capacity. This is being undertaken with
a capital cost of Rs56bn. In order to strengthen its cost competitiveness, it is investing in
setting up additional captive power capacity of 170MW and waste heat recovery system of
45MW. Total capex announced for cement business is Rs110bn.
Near term margin pressure; Buy at decline
Grasim faces margin pressures in both its business in the near-term. VSF prices have
corrected 10% from Q1FY12. Grasim recorded a peak VSF margin of 38.5% in 1Q12, when it
averaged a realisation of Rs152/kg. After the recent price reduction, Grasim current
realisations are around Rs136/kg .
However, its valuation at 5.2x EV/EBITDA for FY12F offers comfort. Beyond, the cyclical
pressures, both its business are preparing for major volume lead growth. Buy at declines
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Grasim's VSF EBITDA was in line and cement did better. Due to pricing pressure, both
businesses face margin pressure in the medium term. However, valuation at 5.2x EV/EBITDA for
FY12F offers comfort. Beyond cyclical pressures, both businesses are preparing for major
volume lead growth. Buy at declines
Robust sales growth driven by better than expected growth in cement
Consolidated net sales grew 16% yoy to Rs58.7bn in 1Q12, mainly due to strong growth in
the cement business. Cement sales grew 16% yoy to Rs46.2bn, led by higher realisations.
Ultra Tech’s average cements realisation improved by 6.6% on a qoq basis driven by better
pricing conditions in April and May 2011. The consolidated VSF division registered growth of
14% yoy to Rs11bn.
Standalone net sales grew 8% yoy to Rs10.2bn in 1Q12. On a standalone basis, VSF sales
grew 5% yoy to Rs9.0bn in 1Q12, driven by higher realisations. Sales volume declined 19%
yoy to 54,839mt in 1Q12 (from 67,302mt in 1Q11). Capacity utilisation for 1Q12 fell to 84% in
1Q12 (from 99% in 4Q11), affected by the suspension of production at Nagda plant for 27
days. Realisations remained firm, improving 29.3% yoy to Rs152,409/mt. Sequentially,
realisation improved 5.1% qoq (Rs144,962/tonne in 4Q11).
Standalone chemical sales grew 29% to Rs1.5bn in 1Q12 led by good demand from end-user
industries. Sales remained flat at 54,424mt in 1Q12 (vs 54,386mt in 1Q11). Realisation went
up 23% yoy and 20% qoq to Rs22,605/mt in 1Q12 on higher caustic prices.
Strong EBITDA growth of 21% consolidated and 17% at standalone level
Consolidated EBITDA grew 21% yoy to Rs15.8bn in 1Q12. EBITDA margin expanded 104bps
yoy to 26.8%, driven by 202bps reduction in freight costs as a percentage of sales.
Sequentially, margin improved 276bps from 24.1% in 4Q11, led by 417bps reduction in raw
material costs as a percentage of sales. Power and fuel costs as a percentage of sales
increased 183bps yoy and 295bps qoq to 22.1% in 1Q12.
On a standalone basis, EBITDA grew 17.2% yoy to Rs3.5bn in 1Q12. EBITDA margin
expanded 261bps yoy to 34.5% in 1Q12, driven by a 501bp reduction in raw material costs as
a percentage of sales (36.6% in 1Q12). Power and fuel costs as a percentage of sales
increased 231bps yoy and 372bps qoq to 13.5% in 1Q12. EBITDA for VSF (standalone) grew
15% yoy to Rs3.5bn. VSF EBITDA margin came in at 38.5% compared to 35.3% in 1Q11.
Strong capex plan
VSF expansion in Vilayat, Gujarat (120,000 TPA) and Harihar, Karnataka (36,500 TPA) are
on track with commissioning expected in FY13. Out of the total VSF capex of Rs24.5bn,
Rs21bn has been earmarked for expansion.
UltraTech Cement currently has a market share of 17% in terms of cement capacity, and to
sustain this level of market share it plans to add 25mmt of capacity over the next 5 years. It
has already started work on 9.2mmt of capacity expansion at its existing locations at
Chhattisgarh and Karnataka along with captive power capacity. This is being undertaken with
a capital cost of Rs56bn. In order to strengthen its cost competitiveness, it is investing in
setting up additional captive power capacity of 170MW and waste heat recovery system of
45MW. Total capex announced for cement business is Rs110bn.
Near term margin pressure; Buy at decline
Grasim faces margin pressures in both its business in the near-term. VSF prices have
corrected 10% from Q1FY12. Grasim recorded a peak VSF margin of 38.5% in 1Q12, when it
averaged a realisation of Rs152/kg. After the recent price reduction, Grasim current
realisations are around Rs136/kg .
However, its valuation at 5.2x EV/EBITDA for FY12F offers comfort. Beyond, the cyclical
pressures, both its business are preparing for major volume lead growth. Buy at declines
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