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UBS Investment Research
Grasim Industries
B eats expectations led by high realizations
Event: Pre-ex PAT up 31% YoY led by higher realisations
Grasim’s Q1FY12 consolidated net revenues increased 16% y/y to Rs58.7bn (-8%
q/q) mainly led by higher realisations in both VSF (+40% y/y) and cement (+11%
y/y). Operating profit increased 21% y/y to Rs15.7bn (+2% q/q). Pre-ex PAT
increased 31% y/y to Rs7.5bn (0.3% q/q, consensus Rs6bn). Cement volumes
increased 5% YoY to 10.34mt led by additional volumes from Star Cement
(domestic volumes declined by ~2% y/y).
Impact: Weak volumes in VSF, due to poor demand and plant shutdown
VSF volumes declined 19% YoY to 0.055mt mainly affected by lower demand and
destocking. However, higher realisations led a 14% YoY increase in revenues.
Declining cotton prices and a difficult China market affected the VSF business.
The Nagda plant was shutdown for 27 days in Q1 due to water shortages; it has restarted
operations from 30-Jun. The pulp JVs continued their robust performance.
Action: Capacity expansion on track; conference call at 9am on 1st August
In cement, the company thinks the over-capacity situation may last for next two to
three years. In VSF, it expects demand to remain weak in Q2 and recover gradually
post that. The recently acquired one-third stake in Swedish pulp company, Domjso,
will aid in sourcing high-quality pulp required for producing speciality fibre.
Orders for critical equipments for the VSF expansion projects have been placed.
We expect further details in the conference call on Monday, 1-Aug-11 at 9am IST.
Valuation: Buy rating
We maintain our Buy rating with SOTP-based PT of Rs2,930
Grasim Industries
Grasim is the holding company (60.3% stake) of Ultratech, India's largest
cement company with a total capacity of about 52mt. It is also India's largest
manufacturer of viscose staple fibre (VSF) and has a 10% global market share. It
also has interests in chemicals and textiles.
Statement of Risk
We believe the key risk comes from a significant decline in cement prices,
delays in its capacity additions, rise in input costs (mainly coal/freight) and any
government intervention to lower cement prices. Grasim imports close to 33%
of its requirements so any significant increase in imported coal prices are likely
to be negative for the company. The proposed restructuring plan needs to be
approved by various regulatory authorities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Grasim Industries
B eats expectations led by high realizations
Event: Pre-ex PAT up 31% YoY led by higher realisations
Grasim’s Q1FY12 consolidated net revenues increased 16% y/y to Rs58.7bn (-8%
q/q) mainly led by higher realisations in both VSF (+40% y/y) and cement (+11%
y/y). Operating profit increased 21% y/y to Rs15.7bn (+2% q/q). Pre-ex PAT
increased 31% y/y to Rs7.5bn (0.3% q/q, consensus Rs6bn). Cement volumes
increased 5% YoY to 10.34mt led by additional volumes from Star Cement
(domestic volumes declined by ~2% y/y).
Impact: Weak volumes in VSF, due to poor demand and plant shutdown
VSF volumes declined 19% YoY to 0.055mt mainly affected by lower demand and
destocking. However, higher realisations led a 14% YoY increase in revenues.
Declining cotton prices and a difficult China market affected the VSF business.
The Nagda plant was shutdown for 27 days in Q1 due to water shortages; it has restarted
operations from 30-Jun. The pulp JVs continued their robust performance.
Action: Capacity expansion on track; conference call at 9am on 1st August
In cement, the company thinks the over-capacity situation may last for next two to
three years. In VSF, it expects demand to remain weak in Q2 and recover gradually
post that. The recently acquired one-third stake in Swedish pulp company, Domjso,
will aid in sourcing high-quality pulp required for producing speciality fibre.
Orders for critical equipments for the VSF expansion projects have been placed.
We expect further details in the conference call on Monday, 1-Aug-11 at 9am IST.
Valuation: Buy rating
We maintain our Buy rating with SOTP-based PT of Rs2,930
Grasim Industries
Grasim is the holding company (60.3% stake) of Ultratech, India's largest
cement company with a total capacity of about 52mt. It is also India's largest
manufacturer of viscose staple fibre (VSF) and has a 10% global market share. It
also has interests in chemicals and textiles.
Statement of Risk
We believe the key risk comes from a significant decline in cement prices,
delays in its capacity additions, rise in input costs (mainly coal/freight) and any
government intervention to lower cement prices. Grasim imports close to 33%
of its requirements so any significant increase in imported coal prices are likely
to be negative for the company. The proposed restructuring plan needs to be
approved by various regulatory authorities.
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