Grasim Industries - Huge Capex will support Growth - Anand Rathi

Grasim is building huge capex which will support growth for next two to three years.

Ultratech cement which is subsidiary of Grasim is incurring Rs. 10000 crore capex in FY13 & FY 14 to support growth.

Chemical & VSF segment is doing capex of Rs. 3500 Crore which will enhance the capacity to achieve sustainable growth over 2-3 years period.

Healthy Business

Chemical & VSF and Cement business is cyclical in nature but still generating healthy double digit ROIC (Created positive spread over cost of capital).

Last 5 years ROIC of Chemical & VSF segment is around 25% which is quite decent. ROIC of current period has come down mainly because of global competitive environment and depressed cotton prices (which dragged down demand of VSF & realization as well.)

Grasim also hold 60.30% stake in Ultratech cement which is a cash cow and maintains a healthy ROIC over 18% in last 5 year.

We used SOTP method for valuing Grasim Industries.

We have valued Grasim's standalone business at 5.5x EV/EBITDA (Used Global median of similar companies) to arrive at fair equity value of Grasim is Rs. 7455 Crore.

We have valued Grasim's 60.3% stake in Ultratech Cement (@ 7.5x EV/EBIDTA) assuming 25% holding company discount and have arrived at a fair Equity value of Grasim's stake in Ultratech Rs 24042 Crore. Investments, we have valued at book value that gives fair value of Rs 67 per share. Total Value per share we arrived based on SOTP is Rs. 3490 per shares which offer 24% upside from current level.

Source : Equity Bulls

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