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Grasim: VSF soars, cement stumbles
May 24, 2011

Grasim Industries has announced its financial results for the quarter and year ended March 2011. The company has reported 7% YoY rise in consolidated sales and 18% YoY decline in net profits for the financial year. Here is our analysis of the results.

Performance summary
  • Consolidated revenues increase by 18.7% YoY during 4QFY11 led by a robust year-on-year growth across all major segments.
  • Operating margins declined marginally from 25% in 4QFY10 to 24.1% in 4QFY11 due to subdued cement realisations and high operating costs.
  • Higher other income and lower effective tax rate during the quarter boosted the bottomline by 32.1% YoY.
  • During the full year 2010-11, consolidated revenues rose by 6.7% YoY. However, net profits declined by 17.9% YoY.


Consolidated Financial Performance
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 53,857 63,903 18.7% 199,334 212,690 6.7%
Expenditure 40,409 48,524 20.1% 141,461 165,858 17.2%
Operating profit (EBITDA) 13,448 15,380 14.4% 57,874 46,832 -19.1%
EBITDA margin 25.0% 24.1%   29.0% 22.0%  
Other income 1,553 2,442 57.2% 5,349 7,135 33.4%
Interest 898 1,081 20.5% 3,346 4,056 21.2%
Depreciation 2,577 2,993 16.2% 9,947 11,384 14.4%
Profit before tax/(loss) 11,527 13,747 19.3% 49,930 38,528 -22.8%
Tax 2,974 2,267 -23.8% 15,705 9,576 -39.0%
Extraordinary Item - -   3,361 -  
(+) Share in profit of associates 139 (18)   511 296  
(-) Minority Share 2,147 2,816 31.2% 7,141 6,600  
Profit after tax/(loss)** 6,545 8,646 32.1% 27,595 22,648 -17.9%
Net margin 12.2% 13.5%   13.8% 10.6%  
No of shares (m)         91.7  
Diluted EPS (Rs)*         247.0  
P/E (times)         9.0  
*trailing twelve month earnings; **excluding extraordinary/ exceptional items

What has driven performance in FY2011?
  • Grasim's consolidated topline grew by 6.7% YoY during the financial year ended March 2011. Its cement subsidiary reported a 3.2% YoY rise in net sales during the year mainly on the back of 7% rise in cement sales volume. However, cement realisations dropped by 4.1% YoY as overcapacity continued to plague the entire cement industry.

  • The VSF and wood pulp segment registered a robust rise of 22.6% YoY during FY11 on the back of a significant 18.9% YoY rise in realisations. The rise in cotton prices benefitted VSF.

  • The chemical segment also registered a decent growth in both volume and value terms as revenues from this segment rose by 10.1% YoY during FY11.

  • 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. Other income increased substantially by 33.4% YoY. The effective tax rate during the year also declined by 6%.

  • At the bottomline level, net profits declined by 17.9% due to poor performance at the operating level, higher interest and depreciation charges. The net profit margin dropped from 13.8% in FY10 to 10.6% in FY11.

    Segment-wise performance (Consolidated)
    Segment FY10 FY11 Change
    Cement      
    Revenues 154,750 159,691 3.2%
    % of total 78% 75%  
    Realisation (Rs / tonne) 3,503 3,360 -4.1%
    VSF & Wood Pulp      
    Revenues 39,402 48,296 22.6%
    % of total 20% 23%  
    Realisation (Rs / tonne) 106,481 126,614 18.9%
    Chemicals      
    Revenues 4,928 5,423 10.1%
    % of total 2% 3%  
    ECU Realisation (Rs / tonne) 18,096 18,720 3.4%

  • In the VSF segment, the company's expansion projects at Vilayat, Gujarat (120,000 TPA) and Harihar, Karnataka (36,000 TPA) are progressing well. Both these projects are expected to be commissioned in FY13. Of the total Rs 24.5 bn capex for these projects, Rs 21 bn will be expended for the expansion projects and Rs 3.5 bn will be utilised for modernisation.

  • Subject to regulatory approvals, the company has decided to acquire a one-third stake in Aditya Holding AB, Sweden for about Rs 2.8 bn through internal accruals. The latter has acquired Domsjo Fabriker AB, Sweden, a leading manufacturer of specialty pulp at an enterprise value of approximately Rs 15.7 bn. This acquisition will help the company to have an assured pulp supply.

  • In the chemical segment, a 182,500 TPA caustic plant and a 60 MW power plant (mainly for captive use) at Vilayat is on the cards. The project is estimated to cost about Rs 7.72 bn.

  • The cement subsidiary (UltraTech Cement) has also earmarked a total capex of Rs 110 bn. Brownfield expansions aggregating to 9.2 mtpa additional cement capacity are expected to be commissioned by early FY14.

  • The company's board has recommended a dividend of Rs 20 per share for the financial year ended March 2011.

What to expect?
At the current price of about Rs 2,213 the stock is trading at 9.0 times trailing 12 month earnings. We shall soon update our research report on the company.

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