MOSL: GRASIM (Neutral)-Higher VSF exports cushion weak domestic demand
GRASIM: Higher VSF exports cushion weak domestic demand
(GRASIM IN, Mkt Cap USD13.3b, CMP INR1498, TP INR1590, 6% Upside, Neutral)
- GRASIM’s 1QFY22 result surprised positively on EBITDA margin, which came in at 19.7% (est. 17.2%), driven by sustained cost reduction and better realization in the Chemicals business. EBITDA stood at INR7.4b v/s a loss of INR2.3b in 1QFY21.
- We raise our FY22E/FY23E standalone EBITDA by 18%/6% to factor in an improved demand outlook and better margin for both the VSF and Chemicals. The holding company discount of 46% is in line with its 10-year average of 48%. We maintain our Neutral
Realization and margin in Chemicals drives 17% EBITDA beat
- Revenue/EBITDA/adjusted PAT (excluding the Fertilizer business in the base quarter) stood at INR37.6b/INR7.4b/INR4.5b as against INR13.4b/-INR2.3b/-INR2.5b in 1QFY21 and was 2%/17%/36% higher than our estimate. The beat was led by better than expected performance in the Chemicals business on the back of higher realization and margin.
- Revenue for the VSF segment improved 277% YoY to INR21b, led by higher volumes (+173% YoY). EBITDA stood at INR4.9b v/s a loss of INR1.1b in 1QFY21, with margin at 23.2% (est. 21%).
- In the VSF business, the management increased the share of exports to 31% in 1QFY22 v/s 11% in 4QFY21, which cushioned the impact of the slowdown in the domestic Textile sector.
- Revenue/EBITDA for the Chemicals business rose 105%/571% YoY (low base) to INR14.4b/INR2.8b, led by better realization (+19% YoY) and higher margin at 19.2% (+13.3pp YoY, est. 13%).
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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