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Grasim Inds: VSF & chemicals lead, cement staggers - Views on News from Equitymaster

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  • Feb 10, 2011 - Grasim Inds: VSF & chemicals lead, cement staggers

Grasim Inds: VSF & chemicals lead, cement staggers

Feb 10, 2011

Grasim Industries has announced its 3QFY11 results. The company has reported a 12.5% YoY rise in consolidated sales and nearly 30% YoY fall in net profits for the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated revenues increase by 12.5% YoY during 3QFY11 led by a robust growth in the VSF and chemical segment.
  • Operating profit declines by 19% YoY due to lower realizations and high input costs in the cement business.
  • While the net profit drops by about 30% YoY, the net profit margin decreases by 5.6% YoY.

Consolidated Financial Performance
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 47,884  53,845 12.5%    145,509 148,787 2.3%
Expenditure 34,035  42,644 25.3%    100,997 117,335 16.2%
Operating profit (EBITDA) 13,848 11,202 -19.1% 44,512 31,452 -29.3%
EBITDA margin 28.9% 20.8%   30.6% 21.1%  
Other income   1,263 1,472 16.5% 3,710   4,694 26.5%
Interest 794 1,088 37.1% 2,448   2,974 21.5%
Depreciation   2,547 2,992 17.5% 7,371   8,391 13.8%
Profit before tax/(loss) 11,771 8,594 -27.0% 38,403 24,781 -35.5%
Tax   3,814 2,604 -31.7% 12,453   7,310 -41.3%
Extraordinary Item - -   3,361  -   
Share in profit of associates    99    127 28.4%    372  314  
Minority Share 903 1,100 21.9% 3,922   3,783  
Profit after tax/(loss)**   7,153 5,018 -29.9% 22,401 14,002 -37.5%
Net margin 14.9% 9.3%   15.4% 9.4%  
No of shares (m)         91.7  
Diluted EPS (Rs)*           224.1  
P/E (times)         10.2  
*trailing twelve month earnings; **excluding extraordinary/ exceptional items

What has driven performance in 3QFY11?
  • The company’s topline grew by 12.5% YoY and 2.3% YoY during 3QFY11 and 9mFY11 respectively. Grasim's cement subsidiary reported an 8.6% YoY rise in net sales for the quarter ended December 2010 because of higher sales volume. Realisations dropped by 1.5% as both poor demand off-take and overcapacity continued to plague the entire cement industry.
  • The VSF and wood pulp segment registered a robust rise of 24.8% YoY during the quarter due to both higher volumes and better realisations. The massive rise in cotton prices benefitted VSF.

  • The chemical segment also witnessed a strong growth in both volume and value terms as net sales rose 21.6% YoY during 3QFY11. ECU realisations grew by 10% YoY led by a recovery in chlorine and HCL prices.

  • The company's consolidated operating profits declined by 19.1% YoY mainly due to poor performance of the cement segment where operating expenses remained high.

  • At the bottomline level, the net profits declined by 29.9% due to poor performance at the operating level, higher interest and depreciation charges. The net profit margin dropped from 14.9% in 3QFY10 to 9.3% in 3QFY11.

    Segment-wise performance (Consolidated)
    Segment 3QFY10 3QFY11 Change
    Cement
    Revenues 36,379 39,490 8.6%
    % of total 76% 73%  
    Realisation (Rs / tonne) 3,330  3,279 -1.5%
    VSF & Wood Pulp
    Revenues 10,503 13,112 24.8%
    % of total 22% 24%  
    Realisation (Rs / tonne) 109,600 123,060 12.3%
    Chemicals
    Revenues 1,213 1,475 21.6%
    % of total 3% 3%  
    ECU Realisation (Rs / tonne)  16,465 18,125 10.1%

  • In the VSF segment, the company is setting up a 120,000 TPA VSF plant at Vilayat, Gujarat at an investment of Rs 16.9 bn. In addition, the capacity at Harihar, Karnataka will be raised by 36,000 TPA through a brownfield expansion at a capex of Rs 4.5 bn. Both these projects are slated for commissioning in FY13.

  • In the chemical segment, an 182,500 TPA caustic plant and a 60 MW power plant at Vilayat mainly for captive purpose are on the anvil. This will require an investment of Rs 7.72 bn.

  • The cement subsidiary UltraTech Cement has also earmarked a capex of Rs 56 bn. Brownfield expansions aggregating to 9.2 mtpa units with related grinding units and bulk terminals are under implementation. An additional capex of Rs 45.5 bn has been allocated for the augmentation of the grinding and evacuation facility, logistics infrastructure, captive thermal power plant, modernisation and completion of existing projects.

What to expect?
At the current price of about Rs 2,279, the stock is trading at 10.2 times trailing 12 month earnings. We shall soon update our research report on the company.

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