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UBS Investment Research
Grasim Industries
Q 4FY11 results: Ahead of expectations
Pre-ex PAT up 15% YoY led by higher sales and other income
Grasim’s Q4FY11 consolidated net revenues increased 19% y/y to Rs63.9bn
(+19% q/q) led by a 34% increase in VSF revenues. Operating profit increased
14% y/y to Rs15.4bn (+37% q/q). Pre-ex PAT increased 15% y/y to Rs7.5bn
(+49% q/q, UBS-e Rs6.1bn, consensus Rs6.2bn). Other income increased 57% y/y
(+66% q/q) to Rs2.4bn. Reported PAT at Rs8.6bn was higher due to reversal of tax
provisions pertaining to earlier years.
VSF EBITDA/t in-line with expectations; volumes higher than estimates
VSF EBITDA/ton in FY11 at Rs48,556 is in-line with our estimate of Rs48,225.
The company seems to be upbeat on VSF demand though it highlighted that some
slowdown has been seen in international VSF prices (domestic prices have
remained robust so far; it sells ~85% of its production in local markets). All its
plants are operating at full capacity. The company also highlighted that Domsjo, in
which it recently purchased one-third stake, has one of the best pulp plants.
Expects pick-up in cement demand in FY12
Grasim expects demand in the country to grow at 8.5% and itself to grow faster
than the industry. It expects industry-wide capacity addition to be ~20mt in FY12
and says that the pricing environment remains challenging. For its own expansion
projects (9.2mt), it has received all clearances, funds are tied-up and orders for
major equipment have been placed (commissioning expected in early FY14).
Valuation: Buy rating
We maintain our Buy rating with SOTP-based PT of Rs2,930.
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
Q 4FY11 results: Ahead of expectations
Pre-ex PAT up 15% YoY led by higher sales and other income
Grasim’s Q4FY11 consolidated net revenues increased 19% y/y to Rs63.9bn
(+19% q/q) led by a 34% increase in VSF revenues. Operating profit increased
14% y/y to Rs15.4bn (+37% q/q). Pre-ex PAT increased 15% y/y to Rs7.5bn
(+49% q/q, UBS-e Rs6.1bn, consensus Rs6.2bn). Other income increased 57% y/y
(+66% q/q) to Rs2.4bn. Reported PAT at Rs8.6bn was higher due to reversal of tax
provisions pertaining to earlier years.
VSF EBITDA/t in-line with expectations; volumes higher than estimates
VSF EBITDA/ton in FY11 at Rs48,556 is in-line with our estimate of Rs48,225.
The company seems to be upbeat on VSF demand though it highlighted that some
slowdown has been seen in international VSF prices (domestic prices have
remained robust so far; it sells ~85% of its production in local markets). All its
plants are operating at full capacity. The company also highlighted that Domsjo, in
which it recently purchased one-third stake, has one of the best pulp plants.
Expects pick-up in cement demand in FY12
Grasim expects demand in the country to grow at 8.5% and itself to grow faster
than the industry. It expects industry-wide capacity addition to be ~20mt in FY12
and says that the pricing environment remains challenging. For its own expansion
projects (9.2mt), it has received all clearances, funds are tied-up and orders for
major equipment have been placed (commissioning expected in early FY14).
Valuation: Buy rating
We maintain our Buy rating with SOTP-based PT of Rs2,930.
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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