Key Data

CMP Rs 2568.55

Sector Diversified

Face Value Rs.10

BSE Code 500300

52 Week H/L Rs 4074/ 2232

Market Cap Rs 23551.03 Cr

Investment Rationale

Grasim Industries Ltd. a dominant player in VSF (Viscose Staple Fibre) & cement businesses in the domestic market has posted a strong growth of 15.38 percent (Y-o-Y) in net sales to Rs 2629.93 crore during Q3 FY08. During the quarter, Cement division’s operating profit rose by 9.19percent while its VSF division reported higher revenues with better margins. The company has chalked out an extensive capex plan encompassing capacity expansion as well as modernization of its VSF and cement division. Barring cement and Textiles, the remaining 3 segments viz. VSF, Chemicals and Sponge Iron have reported a very good performance. Rising international prices of VSF helped Grasim to counter high fuel and freight costs at is cement division. Its combined Net Sales were up by 15.38 percent although its cement division posted an increase of just 11.2 percent. Its EBITDA during the same period grew by 28.85 percent. Due to the increasing power and fuel cost and continuous government pressure on the cement prices, our short term outlook on the company is a bit slackened. But looking forward, the prices are expected to calm down mainly because of huge capacity expansion plans.

The share of blended cement increased from 61percent to 66percent. 13 RMC plants were commissioned during the year. Higher realization during the quarter was set off by the steep hike in fuel cost and increased freight cost, which impacted margins. The company’s aggregate cement capacity (including that of its subsidiaries) will stand augmented by 17 million tonnes at 47 million tonnes upon completion of all expansions. Besides, both the company and its subsidiary are setting up ready mix concrete plants at various locations in the country. The additional capacity of around 90 million tonnes, as announced by the industry, over the 3-year period FY08 to FY10, could result in a surplus scenario, affecting realisation from end-FY09. Rising energy prices would lead to increased costs. However, the addition of captive power plants at various locations will help contain this impact.

For Q3FY07 the company has posted net sales of Rs 2629.93 crore thus registering a growth of 15.38 percent. This was primarily due to the increased sales revenue in the VSF segment by 23.28 percent and 25.18 percent increase in the Sponge Iron segment. The EBITDA for the quarter was higher by 28.85 percent to reach Rs. 921.36 crore. The company posted a 19 percent increase in their consolidated revenues to Rs 4358 crore from 3668 crore. Its Chemical segment also posted an increase in the revenue by 51.82 percent to reach 116.72 crore. The Textiles segment of the Company saw a negative growth rate mainly due to appreciation of rupee.

At current market price of Rs 2568.55, Grasim is quoting at a PER of 15.59x. On EV/Sales and on EV/ EBIDT basis it is quoting at 2.62x and 8.39x of its Dec’07 TTM earnings respectively.