MOSL: GRASIM (Neutral)-Margin deteriorates further on lower prices
Grasim: Margin deteriorates further on lower prices
(GRASIM IN, Mkt Cap USD7b, CMP INR759, TP INR775, 2% Upside, Neutral)
Both VSF and Chemicals businesses in a downcycle
- GRASIM’s results highlight the significant pressure in its standalone business due to the downcycle in both its Viscose and Chemicals businesses, which reported the weakest margins in the last 17 quarters.
- We cut our consol. FY20/21 estimate by 13% and maintain our Neutral Moreover, potential investments in the telecom business Vodafone Idea (GRASIM owns an 11.5% stake) could remain an overhang on the stock.
Miss on both VSF/Chemicals margins
- Standalone revenue declined 15% YoY to INR45b (in-line) in 3QFY20 due to lower realization. Revenue declined by 16% YoY to INR22b in VSF and by 13% YoY to INR13.6b in Chemicals.
- EBITDA declined 61% YoY to INR4.1b (our estimate: INR6.9b) due to sharply lower prices, with the margin contracting 10.7pp YoY/4.5pp QoQ to 9.2%.
- Continued price decline led to margin contraction of 6.5pp YoY to 11.7% in VSF and 14.7pp YoY to 13.6% in Chemicals.
- GRASIM contributed INR102m toward liquidation expense of Aditya Birla Idea Payment Bank (ABIPBL) in the quarter.
- PAT was down 68% YoY at INR1.9b (our estimate: INR3.4b).
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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