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Grasim Industries is well placed to capture the growing opportunity in its core business of VSF in terms of both
volume and healthy realisation. In addition, the performance of its cement business (ie its key subsidiary
UltraTech Cement) has shown signs of improvement with an increase in the average cement price.
Due to the improved demand environment, the performance of the VSF division continues to shine. The VSF
realisation has increased by 7.1% YoY to Rs125 per kg in Q2FY2012 on account of a pick-up in the global
demand with volumes up 17% YoY.
The cement capacity of the company at the consolidated level is the highest among the other domestic
players at 52.75MTPA. Hence the company will be the key beneficiary of a likely pick-up in the demand
through government infrastructure projects in the coming couple of months.
On the other hand, the company is planning to expand its VSF capacity by another 120,000 tonne by FY2013
and its cement capacity by 9.2MTPA by FY2014. We believe the capacity addition will provide volume growth in
the longer run.
We believe the company will benefit due to its strong balance sheet as most of its capex will be met through
internal accruals.
However, in light of the upcoming capacity and stabilisation of the newly-added capacity, the cement prices
are expected to come under pressure. Moreover, cost pressure in terms of coal prices and higher freight cost
remains a key concern.
At the current market price the stock trades at a PE of 9.1x and 8.2x its FY2012 and FY2013 earnings estimates
on a consolidated basis.
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