Grasim Industries - High Costs Take a Toll; Result Update Q3FY15 ::Edelweiss

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Grasim Industries’ (Grasim) Q3FY15 EBITDA of INR12bn (up 16% YoY) was 10% below our estimate due to higher-than-expected costs across segments. Reported PAT at INR3.3bn was ~28% below estimate on account of lower other income (down 46% YoY) and high tax rate. VSF performance was in line-flat volumes YoY and 1.5% QoQ dip in realisations dented PBIDTA margin 220bps YoY. While low pulp cost may improve margin in Q4FY15, a sharp recovery is unlikely in the near term given the subdued outlook for cotton and polyester fibres. We retain our forward estimates for the VSF segment. wherein we had pruned our FY15 EBITDA estimate ~4% and kept FY16 EBITDA estimate unchanged. Ergo, we are revising down our consolidated EBITDA and PAT estimates 3% and 5% for FY15, respectively, and keeping them largely unchanged for FY16. While there are no near term positive triggers for the VSF business, we remain optimistic on recovery in cement business.

VSF: Muted quarter

VSF volumes at ~97kt were flat YoY (down 4% QoQ) despite 15% YoY rise in production. The nearing completion of its capex will boost volumes going ahead. Realisations remained depressed-down 3.7% YoY and 1.5% QoQ. High cost of sulphur and caustic led to overall cost/t being flat QoQ, leading to 60bps QoQ and 220bps YoY drop in PBITDA margins. While margins may improve in Q4FY15 riding fall in pulp cost, a structural improvement is unlikely given poor global cotton outlook and low prices of competing fibers due to lower crude prices. Factoring in the recent trends, we keep our forward EBITDA estimates unchanged.

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https://www.edelweiss.in/research/Grasim-Industries--High-Costs-Take-a-Toll;-Result-Update-Q3FY15/28209.html