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UBS Investment Research
Grasim Industries
Q3FY11 results: Ahead of expectations
VSF segment revenues increased 25% YoY
Grasim’s Q3FY11 consolidated net revenues increased 13% y/y to Rs54.6bn
(+21% q/q, UBS-e Rs50.5b) led by a 25% increase in VSF revenues to Rs13.1bn
(+29% q/q). Operating profit declined 17% y/y to Rs12bn (+52% q/q, UBS-e
Rs10.9b) due to a decline in cement EBITDA. PAT declined by 14% y/y to Rs5bn
(+55% q/q, UBS-e Rs4.3bn). Results were ahead of our expectations mainly due to
the increase in VSF volumes and stronger performance from other segments.
VSF volumes increase sharply, margins at 31%
VSF EBITDA margins were at 31%, largely in line with our estimate of 30%.
Volumes increase by 25% QoQ to 0.85LMT, ahead of our estimate of 0.75LMT,
due to continued strong demand from both domestic and export markets. VSF
plants in the quarter were operating at full capacity. We expect to receive details on
the management outlook in the conference call on 27 January at 9am.
Cement division operating margins at 19%
Cement margins declined 890bps y/y to 19%, led by 1% decline in realisations and
rise in power and fuel costs (volumes were up 9.4% y/y to 10.1mt). For details
please refer our note Ultratech Cement: Q3FY11 results: PAT in-line dated 26
January 2011. Chemical segment had a healthy revenue growth of 22% YoY.
Valuation: maintain Buy rating and SOTP based price target of Rs2,770
While we are cautious on the near-term outlook for the cement sector in India, we
like Grasim for its VSF business (please refer our note VSF margins likely to
improve dated 12 January 2011) and maintain our Buy rating.
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
Q3FY11 results: Ahead of expectations
VSF segment revenues increased 25% YoY
Grasim’s Q3FY11 consolidated net revenues increased 13% y/y to Rs54.6bn
(+21% q/q, UBS-e Rs50.5b) led by a 25% increase in VSF revenues to Rs13.1bn
(+29% q/q). Operating profit declined 17% y/y to Rs12bn (+52% q/q, UBS-e
Rs10.9b) due to a decline in cement EBITDA. PAT declined by 14% y/y to Rs5bn
(+55% q/q, UBS-e Rs4.3bn). Results were ahead of our expectations mainly due to
the increase in VSF volumes and stronger performance from other segments.
VSF volumes increase sharply, margins at 31%
VSF EBITDA margins were at 31%, largely in line with our estimate of 30%.
Volumes increase by 25% QoQ to 0.85LMT, ahead of our estimate of 0.75LMT,
due to continued strong demand from both domestic and export markets. VSF
plants in the quarter were operating at full capacity. We expect to receive details on
the management outlook in the conference call on 27 January at 9am.
Cement division operating margins at 19%
Cement margins declined 890bps y/y to 19%, led by 1% decline in realisations and
rise in power and fuel costs (volumes were up 9.4% y/y to 10.1mt). For details
please refer our note Ultratech Cement: Q3FY11 results: PAT in-line dated 26
January 2011. Chemical segment had a healthy revenue growth of 22% YoY.
Valuation: maintain Buy rating and SOTP based price target of Rs2,770
While we are cautious on the near-term outlook for the cement sector in India, we
like Grasim for its VSF business (please refer our note VSF margins likely to
improve dated 12 January 2011) and maintain our Buy rating.
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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