Grasim Industries: Soft realizations; weak demand :: Kotak Securities

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Soft realizations; weak demand. Grasim’s standalone results reflected a similar trend of soft realizations owing to weakness in underlying demand, as was seen in the case of cement results previously. Consolidated revenue growth (12% yoy) was aided by (1) acquisition of cement assets of Jaiprakash Associates and (2) aggressive capacity addition in the chemical business. Inexpensive valuations (5.7X EV/EBITDA) and potential demand recovery lend to our positive stance. Maintain ADD rating with target price of `4,130 (`3,590 previously)

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Buy Grasim at Rs 3886.10 and add on dips to Rs 3482 - Rs 3611 for Target Rs 4126 in 3 months ::HDFC Sec, report

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Grasim Industries - High Costs Take a Toll; Result Update Q3FY15 ::Edelweiss

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VSF remains depressed Grasim Industries :: HDFC Sec, report

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Grasim Industries: Buy:: Business Line

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Buy Grasim ::Kotak Securities report

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Grasim Industries - Target price revision - Standalone OPM disappoints led by higher costs: Centrum

Rating: Hold; Target Price: Rs2,785; CMP: Rs2,511; Upside: 10.9%



Standalone OPM disappoints led by higher costs



We maintain Hold rating on Grasim Industries with a revised price
target of Rs2,785 (Rs2,875 earlier) considering a) challenging
scenario for the VSF business which is likely to persist in the
near-term, b) lack of near-term triggers for the cement business  and
c) downward revision of 7.3%/6.6% in EPS estimates for FY14E/FY15E. We
believe that the challenges in the VSF business will persist due to
higher cotton inventory globally and favourable cotton procurement
policy in China, which has put pressure on VSF realization. In the
quarter, the profit of the company was below estimates due to
disappointment in the standalone business, where margins contracted
sharply.

$ Disappointment in standalone business leads to lower profits: Led by
higher operating costs, EBITDA from the standalone segment declined
9.7% YoY to Rs1.9bn (estimate: Rs2.7bn), despite 19.8% YoY growth in
revenues to Rs14.6bn (estimate: Rs14.3bn). Led by lower than estimated
EBITDA in the standalone segment, consolidated EBITDA at Rs9.8bn was
below our estimate of Rs10.9bn. Consolidated EBITDA declined 21.7% YoY
and OPM declined 4.8pp YoY. Profit declined 39.6% YoY during the
quarter.

$ VSF segment's margins contract due to higher raw material costs: OPM
of the VSF segment contracted 4.7pp YoY due to higher pulp prices and
rupee depreciation. Though there has been ~14% drop in VSF prices
globally, rupee depreciation has kept prices favourable in the
domestic market. Sales volume of VSF was up 23.5% YoY in the quarter.
EBITDA/kg of VSF declined to Rs17.4 against Rs23.9/kg in Q3FY13 and
Rs25.8/kg in Q2FY14.

$ Earnings estimates revised downwards: We have revised EBITDA
estimates downwards by 2.3%/1.5% for FY14E/FY15E considering higher
raw material costs (pulp price) in the standalone segment. Our
standalone EBITDA estimates are getting revised downwards by 5.2%/4.5%
for FY14E/FY15E. Change in EBITDA estimates leads to 7.3%/6.6%
downward revision in EPS estimates for FY14E/FY15E.

$ Valuation and key risks: The stock trades at 9.5x FY15E EPS, 4.4x
EV/EBITDA and 1.1x P/BV. We have valued the standalone entity at 5x
Dec-FY15E EV/EBITDA and assign 40% discount for its holding in
UltraTech and other companies. We maintain Hold rating on the stock
with a potential upside of 10.9%. Upside risk to our thesis could be
a) firm VSF prices going ahead and b) better-than-estimated cement
price. Key downside risks could be a) fall in cotton price globally
which could impact VSF price, b) lower-than-expected sales volume of
its cement subsidiary.



Thanks & Regards

--

Grasim Industries (GRAS.NS): June 2013: Beat on Core Driven by Lower Costs :Morgan Stanley Research

Grasim Industries (GRAS.NS): June 2013: Beat on Core Driven by Lower Costs  :Morgan Stanley Research

Quick Comment - Grasim reported standalone PBT at Rs2.4bn, down 28% YoY, but 25% higher than MSe of Rs1.9bn. The beat was driven by better than expected performance in the VSF segment (primarily given lower costs) and higher other income. Our EPS change factors lower than earlier expected earnings for cement business and lower margins in VSF business.

Standalone EBITDA declined 31% YoY to Rs2bn, but was 19% ahead of MSe,given lower costs and 7% beat on the revenues. EBITDA margins at 17.6% were down by 621bps YoY but were 180bps better than MSe.

Management re-iterated that the business environment remains volatile, with tough macro and increased global VSF production capacity and high cotton inventory. This will continue to have some pressure on realization. Over the next few quarters, while we expect some gains to Grasim from commissioning / ramp up of new capacity, realizations are unlikely to improve, which could limit margin gains.

Standalone revenue progression was better than expected: Grasim reported standalone revenues at Rs11.5bn (MSe Rs10.8bn), down 7% YoY. The beat was driven by better than expected volumes in both VSF and chemical segments. Realization was broadly in line with estimate, down ~2% QoQ, as global VSF prices remained weak. EBITDA margins declined 621bps YoY at 17.6%, though they improved 206bps QoQ. This was better than MSe of 800bps YoY decline - primarily aided by lower material costs, some of which could reverse in ensuing quarters. Core PAT however declined 17% YoY, given lower taxes, which we expect should reverse in quarters ahead. PAT was also supported by other income of Rs959mn, which grew 14% YoY.

On a consolidated basis, Grasim reported revenues of Rs69bn, 1% YoY growth. Core PBT at Rs11.1bn was down 20%, though was 4% ahead of MSe. EBITDA at Rs12.7bn, down 20% YoY, was broadly in line with MSe, given marginally lower EBITDA (vs. MSe) for cement subsidiary, Ultratech Cement.

Grasim Industries - Annual Report Highlights :: JPMorgan

GRASIM’s cash flow generation should materially pick up, in our view, as the
large capex in VSF gets completed and is commissioned over the coming
quarters. We believe at the current share price, the underlying cement assets
are at an implied value of ~$93/T. We maintain our OW rating and increase
our Jun14 PT to Rs3610.

UltraTech Cement -We see large downside to consensus estimates, and prefer parent Grasim at current valuations:: JPMorgan

UTCEM’s reported earnings were broadly in line with estimates, but EBITDA (ex
Other Operating Income) had a slight miss. UTCEM’s 4% y/y volume decline
highlights the weak industry environment. We remain sharply below consensus
estimates (16/24% for FY14/15E) and see material downside to Street estimates,
essentially on a weak industry environment affecting cement prices and volumes.
We roll forward our PT to Mar-14 from Dec-13 but reduce our target multiple to
8x FY15E EV/EBITDA as demand is likely to remain weak in the near term. We
remain UW on UTCEM and prefer parent GRASIM at current valuations.

Consolidated results in-line; Standalone margin tad lower on low VSF realization- Grasim Industries :: Centrum

Consolidated results in-line; Standalone margin tad lower on low VSF realization
Grasim Industries’ Q4FY13 consolidated operating profit was at Rs14.6bn (vs. est. Rs15.3bn) and adjusted profit was at Rs6.74mn (est. Rs6.66bn). OPM at 19.2% was 1.2pp below our estimates led by lower margin in the standalone business (15.6% vs. est. 16.6%). In the standalone business, the company reported operating profit of Rs2.1bn (est. Rs2.3bn) and adjusted profit of Rs2.1bn (est. Rs2.2bn) primarily due to 2.5% QoQ fall in VSF realization. OPM in the standalone segment remained flat at 15.6% on a YoY basis. Despite near-term challenges in the VSF business due to pressure on global prices led by oversupply in the Chinese market and high cotton inventory globally, we remain positive on the company from a long-term perspective as we believe that capacity expansion in both key segments (cement and VSF) will aid volume growth and thus, better profits in future. We maintain Buy on the stock with a revised price target of Rs3,843 (earlier: Rs3,991).

Cement and Chemical business perform better; VSF performance subdued: Though, consolidated revenue increased 4.8% YoY, operating profit declined 3.4% YoY to Rs14.6bn primarily due to lower profitability of the VSF segment. In the VSF business, EBIT declined 27.7% YoY during the quarter. The chemical segment reported EBIT increase of 81.5% YoY, whereas, EBIT from the cement business was up 1.1% YoY. EBITDA margin was down 1.6pp YoY to 19.3%. Adjusted PAT (adjusted for Rs2bn income from sale of equity investment in subsidiaries) declined 16.7% YoY to Rs6.7bn.

Standalone OPM slightly below estimates, profit largely in-line: The company reported standalone revenue of Rs13.8bn (est. Rs13.7bn), operating profit of Rs2.1bn (est. Rs2.3bn) and OPM of 15.6% (est. 16.6%). Lower than estimated margin was primarily due to 2.5% QoQ decline in VSF realization. Adjusted profit (adjusted for Rs2bn in income from sale of equity investment in subsidiaries) during the quarter was at Rs2.1bn (est. Rs2.2bn).

Higher raw material costs and lower realization lead to decline in VSF margins: Revenue from the VSF segment declined 0.9% YoY to Rs12.1bn led by 1.5% YoY drop in realization to Rs119/kg. Sales volume of VSF was up 0.3% YoY (21.1% QoQ) to 95,161 tonnes. Led by lower realization and higher raw material cost (caustic soda and pulp price), EBITDA of this segment declined 6.9% YoY to Rs2,160mn and operating margin declined 1.2pp YoY to 17.7%.

Grasim Industries’ Q3FY13 Consolidated results in line:: Centrum

Consolidated results in line; Standalone business
disappoints
Grasim Industries’ Q3FY13 consolidated profit at Rs5,492mn was inline
with our estimate of Rs5,471mn driven by better than estimated
profit of its subsidiary UltraTech which reported results earlier.
However, standalone performance was below estimates with EBITDA
at Rs2.2bn vs. est. Rs2.6bn and op. margin at 17.9% vs. est. 20%.
Lower profit of standalone business was due to 32.3% YoY decline in
op. profit of VSF business led by ~5% YoY drop in realization and
higher caustic price. EBITDA margin of VSF business was down 7.2pp
YoY to 18.1%. Though there remains near-term challenges in the VSF
business due to pressure on global prices led by oversupply in Chinese
market and depressed cotton price due to higher inventory, we remain
positive on the company from a long-term perspective as we believe
that capacity expansions in both key segments (cement and VSF) will
aid volume growth and thus offer better profits in future. We maintain
Buy on the stock with a revised price target of Rs4,014 (earlier:
Rs4,210).
Profit declines due to pressure on VSF business: Though, conso. revenue
increased 7.3% YoY, op. profit declined 4% YoY to Rs12.6bn primarily due to lower
profitability of the VSF segment. In the VSF business, EBIT declined 57.7% YoY
during the quarter. Chemical segment reported EBIT increase of 37.4% YoY,
whereas, EBIT from cement business was up 3.2% YoY. EBITDA margin was down
2.2pp YoY to 18.7% led by a steep decline in EBIT margin of VSF segment (8.7%
against 21.7% in Q3FY12). EBIT margin of chemical segment was at 22.3% against
18.3% in Q3FY12. Adjusted PAT declined 7.3% YoY (and 11.4% QoQ) to Rs5.5bn.
Higher raw material costs and lower realization leads to decline in VSF margins:
Revenue from the VSF segment declined 5.1% YoY to Rs10.3bn led by ~5% YoY drop
in realization to ~Rs122/kg. Sales volume of VSF was up 0.5% YoY to 78,579 tonnes.
Led by lower realization and higher raw material cost (higher caustic price), EBITDA of
this segment declined 32.3% YoY to Rs1,880mn and op. margin declined 7.2pp YoY to
18.1%.

Management Visit Update Grasim Industries Buy:: Centrum

Management Visit Update

Grasim Industries

Buy

Target Price: Rs3,541

CMP: Rs3,111

Upside: 13.8%

New capacities to aid volume growth, maintain Buy

We met with the management of Grasim Industries to get an update on the VSF and Cement businesses and progress on capital expenditure plans. The key takeaways are given below:

m  Price increase of ~3% in Q2FY13: The management indicated that VSF price has been increased by Rs4/kg in Q2FY13. Current VSF price is ~RS132/kg. Cotllook A index has recovered to ~85 cents/pound from the lows of 78cents/pound on June 2, 2012. In India, cotton price recovered from Rs93/kg in June ’12 to Rs98/kg as of now. International cotton price is at 84cents/pound against 82cents/pound in June ’12. Historically, VSF price has been at ~50% premium to cotton price over last 7 years and the premium stands at ~23% as of now. As per the management, VSF price should command a premium of ~30% to cotton price and hence, we do not foresee sharp volatility in VSF price in the near-term. As per the management, drought like conditions in the US, Brazil and other cotton producing belts led to improvement in prices and the crop in the next year will be the influencing factor for cotton prices. The management indicated that Chinese players are making losses at current utilization rate and VSF prices and hence, this would protect the fall in international VSF price.

m  New capacities in the VSF segment on schedule: The company is increasing its VSF production capacity by 156KTPA (~47% of current installed capacity of 334KTPA) by Q4FY13E. The expansion plans are on schedule and we believe production will commence from Q1FY14E from the expanded capacities. We believe VSF sales volume will grow by ~11% in FY14E and FY15E.  The company is also expanding Caustic Soda production volume by 182KTPA to support the increase in VSF capacity. The planned expenditure for VSF capacity augmentation was Rs37.4bn, of which Rs9.6bn was spent till FY12. Post-expansion, Grasim will have 15% market share in global VSF industry against 9% at present.

m  Cement demand in the country to grow at 8%; new capacity addition in the industry should be 20mt each over the next three years:  The management believes that cement demand in the country would grow at ~8% in FY13E. The key drivers of demand would be rural and semi-urban housing construction activities. Any improvement in infrastructure activities from the government side will further help demand growth. With the revival of monsoons, the management is hopeful that the industry will achieve its expected demand growth. It believes the industry will add 20mt of new capacity each year over the next three years.

m  New capacities in the cement business on track: The management indicated that the new capacities of 9.2mt (4.8mtpa at Raipur, Chattisgarh and 4.4mtpa at Malkhed, Karnataka) in the cement business were on track and should get commissioned by Q1FY14E. The capex in the cement business was Rs119.4bn, of which the company had spent Rs32.2bn till FY12. The management indicated that the target market from the Karnataka capacity would be Maharastra and Gujarat and hence, oversupply in the South region would not impact volume growth from this plant. We believe sales from new plants will start from Q4FY14E. We expect cement sales volume growth of 7% and 10% in FY14E and FY15E respectively.

m  Estimates revised upwards considering new capacity for VSF and higher VSF price:  We have revised our EPS estimates upwards by 10.4%/16.1% to Rs334.4/Rs386.1 for FY13E and FY14E respectively for the company considering volume growth from new plants and higher VSF prices.

m  Stock attractively valued, maintain Buy with a revised price target: At the CMP, the stock trades at 8x FY14E EPS, 4x EV/EBITDA and 1.4x P/BV. We believe that the company would turn free cash flow positive in FY14E after experiencing negative free cash flow in FY13E. RoCE of the company will improve to 14.2% by FY15E against 12% in FY12. Any revival in global economy will help the company gain market share for its expanded capacity in the VSF segment earlier than our expectation. We maintain Buy on the stock with a revised price target of Rs3,541 (earlier: Rs3,124), upside of 13.8% from its CMP.

Thanks & Regards, 

Buy Grasim/UltraTech:: Cement volumes, prices resilient :Motilal Oswal

Cement volumes, prices resilient
VSF prices have bottomed-out; mega capex plans on track
 Cement volumes are likely to grow 8% in FY13 and 9-10% in FY14; prices are resilient
with sub-normal seasonal correction this monsoon.
 VSF prices have stabilized, with further downside unlikely, as Chinese players would
be making losses at 65-68% utilization. Grasim expects sustainable EBITDA margin of
25-30%.
 UltraTech has capex plans of ~INR157b over the next 3-4 years. Grasim would be
investing INR37.4b to augment its VSF capacity by FY13.
 The outlook for both the cement and VSF businesses is improving. Maintain Buy on
Grasim/UltraTech .

Grasim Industries, Acquires 40% stake in sick pulp manufacturer :Nomura research

Grasim Industries has announced an acquisition of 40% stake in a
distressed pulp manufacturer Terrace Bay Pulp, Canada. Another 60%
has been acquired by an Aditya Birla Group entity Thai Rayon. While
further details have not been revealed, Grasim will infuse USD44 mn
over a three year period into Terrace Bay out of a total equity
requirement of USD110 mn. At this moment the mill is shutdown after an
explosion in its plant in Oct’11 further weakened an already weak
financial position and will be restarted by Oct’12. Terrace Bay at this
moment has been placed under credit protection by Canadian
authorities.

Grasim Industries: Yet another step towards integration of VSF business :Nirmal Bang

Yet another step towards integration of VSF business Grasim Industries (GIL) has signed an agreement to acquire Canada based-Terrace Bay Pulp Inc (TBP) which has 285,000tn of paper grade pulp capacity. GIL, which has valued the assets of TBP at US$110mn, will pay US$44mn for its 40% stake in TBP, while the remaining 60% will be held by Thai Rayon Public. The company plans to convert TBP’s paper grade pulp capacity to rayon grade pulp, which would be used in its viscose staple fibre (VSF) unit. We believe this is another step by GIL to increase its reliance on captive sources for major raw materials that are required for producing VSF and also develop an integrated business model that is immune to rising input costs. We retain our target price of Rs2,898 on GIL, but downgrade our rating from Buy to Hold because of the recent surge in stock price.

Technical Query :IndusInd Bank, Sun TV, Geodesic, Sterlite Industries, Hindustan Zinc, RCom, Grasim Industries, :Business Line

Grasim Industries Cheap but will feel headwinds ::Macquarie Research

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Grasim Industries
Cheap but will feel headwinds
Event
 Downgrade to Neutral: We believe Grasim will feel the headwinds of
stagnating earnings and potential penalty by the Competition Commission of
India on its subsidiary Ultratech. However, the stock does not look expensive
to us and offers diversified earnings given the conglomerate structure. Thus,
we downgrade Grasim to Neutral from Outperform. We marginally reduce our
earnings estimates (3–5%) and cut our TP to Rs2,757 (from Rs2,851).
Impact
 Cement – our assumptions remain optimistic: We build in 11% YoY
volume growth for CY12 as well as flat EBITDA/t of Rs973. This is based on
the assumption that the current pricing discipline in the industry will continue,
despite the severely oversupplied market.
 Penalty by Competition Commission could erase 27% of net profit: We
believe that CCI is in the last stages of completing its enquiry into the cement
companies and likely to announce penalties in the next month or so. Based on
recent trends, this is likely to be 6-7% of total revenue or around 27% of net
profit.
 Bearish cotton outlook to weigh on Viscose Staple Fibre (VSF) prices:
Our global soft commodities team forecasts that fundamentals will continue to
loosen for cotton as world supply improves after last year’s bumper harvests
and as demand continues to weaken on the back of poor retail demand,
destocking and switching to synthetics. There is some short-term price
support from the US plantings and Chinese reserve buying, which may give
way to bearish fundamentals, especially on the demand side.
 Consensus numbers slightly bullish: We are 3% and 4% lower than
consensus on FY13E and FY14E, respectively, given our more muted view of
the VSF business outlook.
Earnings and target price revision
 We reduce our FY13E and FY14E earnings by 3% and 5%, respectively.
Price catalyst
 12-month price target: Rs2,757.00 based on a DCF methodology.
 Catalyst: Penalty by CCI and possible cement price drops post June.
Action and recommendation
 Downgrade to Neutral: In our view, investors who are not concerned about
CCI penalties may want to own this name as opposed to its subsidiary,
Ultratech Cements (UTCEM IN, Rs1,490.65, Underperform, TP: Rs883).

Accumulate ULTRATECH CEMENTS; Buy GRASIM INDUSTRIES : Kotak Securities PDF link

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight02042012.pdf




ULTRATECH CEMENTS
PRICE: RS.1507 RECOMMENDATION: ACCUMULATE
TARGET  PRICE: RS.1592 FY13E P/E:16.5X
GRASIM INDUSTRIES
PRICE: RS.2629 RECOMMENDATION: BUY
TARGET  PRICE: RS.3109 FY13E P/E: 9.5X
‰ We recently met with the management of Grasim and Ultratech Cements
to get insights about cement and VSF demand and pricing scenario.
‰ Cement demand continues to remain high due to spurt in infrastructure
activity primarily in western and northern region.
‰ VSF prices have stabilized and pulp prices are also softening. This can aid
margin improvement.
‰ With excellent ordering seen in the road segment and pre-election spending for infrastructure projects in Gujarat, we expect cement demand to
remain strong going forward. Cement prices are also expected to remain
strong for next two quarters till monsoons. We thus revise our estimates
for Ultratech Cements and Grasim Industries to factor in improved pricing and volumes for FY13 and continue to maintain our positive bias for
both the companies.
‰ We thus continue to maintain ACCUMULATE on Ultratech Cements and
would advise investors to use declines in the stock to buy (Price target Rs
1592) and BUY on Grasim Industries (Price target Rs 3109 )
Key highlights about the company
Cement demand and pricing
Cement demand has been witnessing an improvement since past few months with
improvement in the demand from infrastructure segment as well as residential real
estate segment. Cement prices have also remained strong after witnessing declines
in Dec, 2011 to Jan, 2012. Prices have moved up in line with improvement in cement demand as well as increase in cost pressures.  Company's domestic dispatches
stand at nearly 35.7MT for Apr,11-Feb,12 vis-a-vis 34.57MT for the full year in FY11.
Though prices have moved up but margins may remain at similar levels on sequential basis since cost pressures continue to remain high. Freight cost per tonne may
remain high going forward due to hike in railway freight rates as well as expected
increase in diesel prices. Power and fuel cost per tonne may also remain high due to
expected increase in domestic coal prices by Coal India. Imported coal prices have
come down in past few quarters but corresponding rupee depreciation has netted off
its impact to some extent

Grasim Industries Operational performance disappoints - Downgrade to HOLD ::Emkay

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Grasim Industries

Operational performance disappoints - Downgrade to HOLD

HOLD

CMP: Rs2,483                                        Target Price: Rs2,550

---

n     Q3FY12 standalone EBIDTA at Rs2.8 bn (-23% yoy) below est led by lower VSF volumes and margins. However APAT at Rs2.7bn (-3% yoy) came in line led by higher other income 

n     Though VSF realisation improved 4.4% yoy (3% qoq) led by INR deprecation, VSF  volumes decline 7.6% impacted by sluggish demand across markets particularly  in EU  

n     Due to 3Q operation performance miss we we cut FY12/13 EBITDA estimates by -3.9%/-5.1%. However the cut in EPS estimates is lower on account of higher other income

n     Demand outlook for VSF remains uncertain - expect volatile VSF prices affected by factors like channel inventory, currency fluctuations. Cost to remain high led by CIL’s new coal pricing system. Downgrade to HOLD – lower TP Rs2550