MOSL: GRASIM INDUSTRIES (Neutral)-Chemical segment drive profits
Grasim Industries: Chemical segment drive profits
(GRASIM IN, Mkt Cap USD10.3b, CMP INR1047, TP INR1122, 7% Upside, Neutral)
- Strong realization drives profits: Standalone 4QFY18 revenue stood at INR46b, led by 15% YoY revenue growth in the VSF segment and 35% YoY growth in the Chemical segment. EBITDA stood at INR8.5b (est. of INR8.7b), with the margin at 18.3% (flat YoY; -2pp QoQ). Tax rate was at 24.5% v/s 27% in 4QFY17, leading to adj. PAT of INR5.4b (est. of INR5b).
- VSF - realization uptick drives profits: Volumes declined 7% YoY due to a delay in regulatory approvals for enhanced capacity. Realizations increased sequentially, led by higher proportion of domestic sales and specialty fiber, resulting in a 16% YoY increase in EBITDA to INR4.0b.
- Chemical segment: Volumes rose 11% YoY on a like-to-like basis. There was an increase in ECU realizations and also the proportion of value-added products in the mix. Chemical revenue stood at INR14.4b. Margins stood at 28.6% (+1.25pp QoQ), as rising power and salt rates were offset by better realization.
- Valuation view: GRASIM's long-term holding discount to its investment in Ultratech has been ~40-45%. We expect GRASIM to continue maintaining its long-term holding discount for its 60% and 57% stakes in Ultratech and ABCL, respectively. Hence, we value its investments in Ultratech and ABCL at a 40% discount to the current market price, and investments in other group companies at ~50% discount. We, thus, arrive at a fair value of INR1,122, implying a 7% upside from current levels. Maintain Neutral.
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.
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