Grasim Industries - Quarterly Update - Elara Capital

Deep Value

High cement profits boost bottomline

Grasim reported 12.8% YoY growth in consolidated revenues mainly on the back of YoY increase in revenue in cement business. However, EBITDA margins shrunk marginally by 10 bps YoY (up 30 bps QoQ) due to fall in margins of VSF business on account of lower VSF prices. Net profit for the quarter grew 5.9% YoY and 33.5% QoQ on the back of higher other income and lower interest expenses.

VSF profits decline on lower realisations

VSF volumes grew by 10.8% YoY (21.3% QoQ) to 0.95 lakh tonnes in Q4FY12 due to higher export. However VSF realisations were down by 16.3% YoY to ~INR121,293/tonne as in the corresponding quarter in previous year VSF prices were at all time high. EBITDA/tonne for VSF stood at INR 26,533 as compared to ~INR 59,977 in Q4FY11 and INR 39,251 in Q3FY12.

However, cement business posts strong growth

Total cement volumes (grey and white) increased 7.5% YoY (impressive 14.3% QoQ) to 12.5mn tonnes due to strong seasonal demand. Blended realisations increased 10.5% YoY and QoQ by 1.7% (INR 77/tonne) to INR4,512/tonne. The blended EBITDA per tonne for the quarter stood at INR 1,188 as compared to INR 979 in Q4FY11 and INR 1,025 in Q3FY12.

Valuations

At CMP INR 2,418 of the stock is trading at attractive valuation of 6.7x FY14E consolidated earnings, and 1x P/BV despite having healthy return ratios and margins. Grasim's cement business is available at USD ~66 per tonne (including Star Cement), only player in the large cap space which is available at discount to replacement cost. Given attractive valuations and expected improvement in VSF earnings due to capacity addition, we have assigned BUY rating to the stock with unchanged price target of INR 2,950.

Source : Equity Bulls

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