MOSL: GRASIM INDUSTRIES (Neutral)-VSF margins impacted by cost push
​Grasim Industries: VSF margins impacted by cost push
(GRASIM IN, Mkt Cap USD8.1b, CMP INR1121, TP INR1234, 10% Upside, Neutral)
- Strong realization drives profits: Standalone 4QFY17 EBITDA rose 37% YoY (-3.5% QoQ) to INR5.25b, translating into a margin of 18.3% (-2.24pp QoQ, +1.1pp YoY), led by realization improvement in the VSF segment. Revenue grew 13% YoY to INR28.7b, while PAT rose 73% YoY to INR3.15b on lower interest and depreciation expense.
- VSF - realization uptick drives profits: VFS revenue grew 12% YoY to INR19.45b (est. of INR16.3b) on realization boost of 11% YoY and modest volume growth of 2.3% YoY, translating into a margin of 17.7% (v/s 15.4% in 4QFY16). However, margin shrunk 5.1pp QoQ due to higher pulp prices and impact of Harihar unit shutdown due to water shortage (impact of INR450m). Realization improvement was driven by an uptrend in global prices and a favorable product mix (higher proportion of specialty products).
- Chemical performance impacted by higher caustic realizations: Chemical revenues stood at INR10.68b (+11.6% YoY) due to higher caustic realizations. However, ECU realizations were flat YoY due to negative chlorine realizations. Volumes fell 6% YoY in 4QFY17 due to lower demand for chlorine. Margin were marginally lower at 19.8% (-0.4pp QoQ).
Grasim Industries Limited is a holding company. The Company's segments include Viscose Staple Fibre and Wood Pulp; Cement, which includes Grey, White and Allied Products; Chemicals, which includes Caustic Soda and Allied Chemicals, and Others, which includes textiles. Its products include viscose staple fibre, rayon grade pulp, grey cement, white cement and textiles. The Company conducts its cement business through its subsidiary, UltraTech Cement Limited. Viscose Staple Fibre is used in apparels, home textiles, dress material, knitted wear and non-woven applications, and its plants are located at Nagda in Madhya Pradesh, Kharach and Vilayat in Gujarat and Harihar in Karnataka, with an aggregate capacity of over 500 kilo-tons per annum. It also offers fabrics and synthetic yarns through its subsidiary, Grasim Bhiwani Textiles Limited. It caters to international fashion houses in the United States and the United Kingdom supplying fabric to them for manufacturing of garments.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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