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Grasim Industries Ltd Overweight
GRAS.BO, GRASIM IN
UTCEM beat and strong VSF margin drive another
robust quarter
While we had expected a strong set of results from Grasim post the large
earnings beat by UTCEM (EBITDA ~20% ahead of JPMe) last week (link
to the report), the company continues its strong performance in the VSF
segment. We were surprised by the margin performance of the business
(flat q/q at 39%) despite a weak pricing environment and continued cost
pressures. Consol EBITDA was at Rs16.4bn (vs. JPMe Rs13.6bn and
consensus at Rs13.0bn) and consol PAT was at Rs7.5bn (vs. JPMe
Rs6.5bn and consensus at Rs5.8bn).
Better than expected realizations in a weak environment: Grasim’s
VSF segment reported EBITDA of Rs3.5bn (vs. JPMe Rs3.2bn) driven
by 5% increase in realization (Rs152/kg-lifetime high realizations) and
lower than expected cost. The strong ASPs was a results of higher
average prices (volumes in Jun were lower due to plant shutdown) given
the high exit prices in 4QFY11 (Rs158/kg), which helped despite the
~Rs12/kg price reduction in the quarter. Further, lower than expected
cost increase (+4% q/q) aided to maintain flat VSF margins q/q (~39%).
1QFY12 volumes were down 36% q/q and -19% y/y (54.8kt vs. JPMe at
63kt) due to weak demand (high inventory in the value chain) and
disruption in production at Nagda in June owing to water shortage
(restarted from 30-Jun-11).
2QFY12 to see a slowdown in performance: The VSF segment
margins would see an impact from lower prices (exit prices at Rs141/kg
and reduced further in July) from 2QFY12 onwards. Further,
management has highlighted in its presentation that "slackness in
demand" would impact 2Q volumes and expect to see gradual recovery
thereafter. We expect VSF margins at 32% level over FY12-13. 1QFY12
VSF EBITDA of Rs3.5bn was 27% of JPMe FY12 VSF EBITDA
(Rs13.2bn).
Cement sector outlook: As against its previous guidance of cement
industry demand growth of >8.5% in FY12, the management now expect
demand growth of >7.5% from 2HFY12 onwards. This coupled with the
weak growth in 1QFY12 (demand grew at 1.4%) and the monsoon
impact in the Sep quarter, we believe that our estimate for 7% industry
consumption growth in FY12 remains at risk. The management, in its
presentation, pointed to a weak price environment in the monsoon and
highlighted that demand and prices from 3QFY12 would depend on
‘construction activities post monsoon and general revival of economy’.
Marginal reduction in capex guidance: As highlighted in our previous
note (link to the report) on cement capex, the management reduced capex
guidance for cement from Rs53.67bn to Rs51.4bn in FY12 (and was
pushed up in FY13). 1QFY12 capex in cement was at Rs5.92bn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Grasim Industries Ltd Overweight
GRAS.BO, GRASIM IN
UTCEM beat and strong VSF margin drive another
robust quarter
While we had expected a strong set of results from Grasim post the large
earnings beat by UTCEM (EBITDA ~20% ahead of JPMe) last week (link
to the report), the company continues its strong performance in the VSF
segment. We were surprised by the margin performance of the business
(flat q/q at 39%) despite a weak pricing environment and continued cost
pressures. Consol EBITDA was at Rs16.4bn (vs. JPMe Rs13.6bn and
consensus at Rs13.0bn) and consol PAT was at Rs7.5bn (vs. JPMe
Rs6.5bn and consensus at Rs5.8bn).
Better than expected realizations in a weak environment: Grasim’s
VSF segment reported EBITDA of Rs3.5bn (vs. JPMe Rs3.2bn) driven
by 5% increase in realization (Rs152/kg-lifetime high realizations) and
lower than expected cost. The strong ASPs was a results of higher
average prices (volumes in Jun were lower due to plant shutdown) given
the high exit prices in 4QFY11 (Rs158/kg), which helped despite the
~Rs12/kg price reduction in the quarter. Further, lower than expected
cost increase (+4% q/q) aided to maintain flat VSF margins q/q (~39%).
1QFY12 volumes were down 36% q/q and -19% y/y (54.8kt vs. JPMe at
63kt) due to weak demand (high inventory in the value chain) and
disruption in production at Nagda in June owing to water shortage
(restarted from 30-Jun-11).
2QFY12 to see a slowdown in performance: The VSF segment
margins would see an impact from lower prices (exit prices at Rs141/kg
and reduced further in July) from 2QFY12 onwards. Further,
management has highlighted in its presentation that "slackness in
demand" would impact 2Q volumes and expect to see gradual recovery
thereafter. We expect VSF margins at 32% level over FY12-13. 1QFY12
VSF EBITDA of Rs3.5bn was 27% of JPMe FY12 VSF EBITDA
(Rs13.2bn).
Cement sector outlook: As against its previous guidance of cement
industry demand growth of >8.5% in FY12, the management now expect
demand growth of >7.5% from 2HFY12 onwards. This coupled with the
weak growth in 1QFY12 (demand grew at 1.4%) and the monsoon
impact in the Sep quarter, we believe that our estimate for 7% industry
consumption growth in FY12 remains at risk. The management, in its
presentation, pointed to a weak price environment in the monsoon and
highlighted that demand and prices from 3QFY12 would depend on
‘construction activities post monsoon and general revival of economy’.
Marginal reduction in capex guidance: As highlighted in our previous
note (link to the report) on cement capex, the management reduced capex
guidance for cement from Rs53.67bn to Rs51.4bn in FY12 (and was
pushed up in FY13). 1QFY12 capex in cement was at Rs5.92bn.
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