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Grasim Industries (GRASIM)
Cement
Stable pricing in VSF, seasonal improvement in cement. Grasim reported an
improved operating performance with stability in VSF prices (+3% qoq) and a sharp
improvement in cement prices. We are encouraged by the stability in VSF pricing
following a slump, though remain watchful of the overall demand environment. At 9X
on FY2013E earnings, Grasim remains our preferred pick among cement companies
under our coverage. Maintain BUY with a target price of Rs2,900.
Operational performance in line, net income beats estimate, driven by higher other income
Grasim reported revenue of Rs62.6 bn (11% qoq, 16% yoy), operating profit of Rs13.1 bn (45%
qoq, 17% yoy) and net income of Rs6.7 bn (60% qoq, 33% yoy) against our estimate of Rs60.8
bn, Rs13 bn and Rs5.3 bn respectively. Operating performance was broadly in line for both, the
cement and VSF businesses. Marginally lower-than-estimated VSF revenue (Rs10.9 bn against our
estimate of Rs11.4 bn) was largely compensated a higher contribution from the chemical segment.
Higher-than-estimated net income was driven mainly by higher other income and lower interest
costs flowing in from the cement subsidiary due to (1) Rs666 mn of prior-period subsidies booked
as other income and (2) Rs384 mn of subsidy from State Investment Promotion Scheme netted off
in the interest cost. We discuss the performance of each segment in detail in subsequent sections.
VSF – prices stabilize after a sharp correction, realizations aided by Rupee depreciation
Grasim’s VSF division registered a 3% sequential increase in realizations driven by (1) fairly stable
domestic prices during the quarter and (2) Rupee depreciation offsetting the weakness in VSF
prices in international markets. Given the correction in cotton prices and an uncertain demand
environment, we factor 4% yoy decline in volumes in 4QFY12 and 4% and 7% growth in volumes
and realizations respectively in FY2013.
Cement – strong operational quarter driven by robust pricing
Grasim’s cement division (UltraTech Cement) reported a strong 53% sequential jump in
profitability driven by (1) 8% (Rs17/bag) increase in realizations and (2) stable operating costs.
Cement prices on an average increased by Rs16-17/bag sequentially (with some moderation in
December) after weakness during the monsoons. Prices in South India (~25% of UTCEM sales)
remained stable at Rs280-285/bag through the quarter despite the monsoons in South India.
Maintain BUY with a target price of Rs2,900
We maintain our BUY rating with a target price of Rs2,900. On comparative valuation for FY2013,
our assigned valuation implies 5X EV/EBITDA for the VSF business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Grasim Industries (GRASIM)
Cement
Stable pricing in VSF, seasonal improvement in cement. Grasim reported an
improved operating performance with stability in VSF prices (+3% qoq) and a sharp
improvement in cement prices. We are encouraged by the stability in VSF pricing
following a slump, though remain watchful of the overall demand environment. At 9X
on FY2013E earnings, Grasim remains our preferred pick among cement companies
under our coverage. Maintain BUY with a target price of Rs2,900.
Operational performance in line, net income beats estimate, driven by higher other income
Grasim reported revenue of Rs62.6 bn (11% qoq, 16% yoy), operating profit of Rs13.1 bn (45%
qoq, 17% yoy) and net income of Rs6.7 bn (60% qoq, 33% yoy) against our estimate of Rs60.8
bn, Rs13 bn and Rs5.3 bn respectively. Operating performance was broadly in line for both, the
cement and VSF businesses. Marginally lower-than-estimated VSF revenue (Rs10.9 bn against our
estimate of Rs11.4 bn) was largely compensated a higher contribution from the chemical segment.
Higher-than-estimated net income was driven mainly by higher other income and lower interest
costs flowing in from the cement subsidiary due to (1) Rs666 mn of prior-period subsidies booked
as other income and (2) Rs384 mn of subsidy from State Investment Promotion Scheme netted off
in the interest cost. We discuss the performance of each segment in detail in subsequent sections.
VSF – prices stabilize after a sharp correction, realizations aided by Rupee depreciation
Grasim’s VSF division registered a 3% sequential increase in realizations driven by (1) fairly stable
domestic prices during the quarter and (2) Rupee depreciation offsetting the weakness in VSF
prices in international markets. Given the correction in cotton prices and an uncertain demand
environment, we factor 4% yoy decline in volumes in 4QFY12 and 4% and 7% growth in volumes
and realizations respectively in FY2013.
Cement – strong operational quarter driven by robust pricing
Grasim’s cement division (UltraTech Cement) reported a strong 53% sequential jump in
profitability driven by (1) 8% (Rs17/bag) increase in realizations and (2) stable operating costs.
Cement prices on an average increased by Rs16-17/bag sequentially (with some moderation in
December) after weakness during the monsoons. Prices in South India (~25% of UTCEM sales)
remained stable at Rs280-285/bag through the quarter despite the monsoons in South India.
Maintain BUY with a target price of Rs2,900
We maintain our BUY rating with a target price of Rs2,900. On comparative valuation for FY2013,
our assigned valuation implies 5X EV/EBITDA for the VSF business.
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