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Grasim Industries
Visit highlights: stable business
& confident management
Stable business & inexpensive valuations; maintain Neutral
Our recent meeting with Grasim’s top management points to healthy profit
outlook. Also, the Co believes that the worst phase for the macro-environment is
behind us. We expect strong profits in 3Q-4Q FY12 & thereafter foresee lower
downside risk for Grasim vs pure cement majors. Maintain Neutral on relatively
better earnings & steep valuation discount of ~40-60% vs pure plays
VSF demand & margins intact despite global pressures
Grasim said the slowdown in global textile demand has not impacted their VSF
offtake so far. Also, local VSF prices have been stable as rupee depreciation has
offset pressure from falling VSF prices in China. Grasim imports 45-50% of its
pulp (input) requirements but the impact of rupee depreciation is unlikely to be
material due to falling global pulp prices (down ~10% vs 2Q). Our forecasts factor
modest (~100bps) margin slippage in FY13 due to pot’l pressure on VSF prices
Cement outlook to improve over next 2 years
Grasim sees some signs of recovery in cement demand across most regions,
except Andhra Pradesh. The Co expects pricing power to improve over the next
24-30 months. We think cement prices & EBITDA per ton have already risen
sharply recently in 3Q FY12 and the best-case outlook for FY13 profits is flattish
YoY as there is downside risk to cement prices, especially in south India.
No capex slowdown; mgt. confident about LT prospects
In contrast with macro-concerns, Grasim said there is no slowdown in its
investment plans and the Co remains on track for ~50% capacity expansion in
VSF and ~20% expansion in cement by FY14. The Co is also investing in logistics
infrastructure & waste-recovery systems.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Grasim Industries
Visit highlights: stable business
& confident management
Stable business & inexpensive valuations; maintain Neutral
Our recent meeting with Grasim’s top management points to healthy profit
outlook. Also, the Co believes that the worst phase for the macro-environment is
behind us. We expect strong profits in 3Q-4Q FY12 & thereafter foresee lower
downside risk for Grasim vs pure cement majors. Maintain Neutral on relatively
better earnings & steep valuation discount of ~40-60% vs pure plays
VSF demand & margins intact despite global pressures
Grasim said the slowdown in global textile demand has not impacted their VSF
offtake so far. Also, local VSF prices have been stable as rupee depreciation has
offset pressure from falling VSF prices in China. Grasim imports 45-50% of its
pulp (input) requirements but the impact of rupee depreciation is unlikely to be
material due to falling global pulp prices (down ~10% vs 2Q). Our forecasts factor
modest (~100bps) margin slippage in FY13 due to pot’l pressure on VSF prices
Cement outlook to improve over next 2 years
Grasim sees some signs of recovery in cement demand across most regions,
except Andhra Pradesh. The Co expects pricing power to improve over the next
24-30 months. We think cement prices & EBITDA per ton have already risen
sharply recently in 3Q FY12 and the best-case outlook for FY13 profits is flattish
YoY as there is downside risk to cement prices, especially in south India.
No capex slowdown; mgt. confident about LT prospects
In contrast with macro-concerns, Grasim said there is no slowdown in its
investment plans and the Co remains on track for ~50% capacity expansion in
VSF and ~20% expansion in cement by FY14. The Co is also investing in logistics
infrastructure & waste-recovery systems.
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