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Grasim has effected one of its sharpest price hikes in viscose staple fibre ( VSF) yesterday of
Rs7/kg. It has also reduced the discounts it offers to trade, and hence adjusted price hike is
Rs11/kg, taking its net realisation to Rs135/kg. VSF accounts for 25% of Grasim's EBITDA
Effective VSF prices raised by 9% for 4QFY11 by Grasim
Driven by buoyant demand conditions for the fibre, and rising prices of polyester staple fibre
(linked to rising crude oil prices), Grasim has taken up its net realisations for VSF by around
9% to Rs135/bag for 4QFY11. The company realised Rs116.4/kg in Q2FY11, when it
recorded EBITDA margin of 31.8%. This price hike we believe would be largely margin
accretive. We have a margin forecast of 36% for FY11 and 34% for FY12.
Price hike might not impact volumes
Grasim has raised VSF prices by 16% from Q2FY11 levels in Q4FY11. However, prices
of its competing fibre - polyester staple fibre - have also risen by 29% in the same period.
Hence, we believe, Grasim would not face any material volume resistance as a consequence
of the sharp price hike.
Grasim has significant expansion programmes in place to drive volume growth
Grasim is raising its current capacity of 333,975mt of VSF by 156,500 by FY13, through a
green field expansion, and a brown field expansion at its existing plant at Harihar.
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