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MOSL: GRASIM INDUSTRIES (Neutral)-Margin improvement led by chemicals segment

Grasim Industries: Margin improvement led by chemicals segment

(GRASIM IN, Mkt Cap USD8.2b, CMP INR1127, TP INR1242, 10% Upside, Neutral)

 

• Strong ECU realization drives profits: Standalone 3QFY18 revenue came in at INR44b (est. of INR30.2b), led by a healthy performance from the chemicals business. EBITDA stood at INR8.7b (est. of INR7.8b), with PAT of INR4.7b (est. of INR4.7b). Tax rate was 35% v/s 31% in 3QFY17.
• VSF – margins contract on account of cost push: Volumes increased 9% YoY on a like-to-like basis, led by strong domestic demand (77% of total sales). VSF margin shrunk 1pp QoQ to 21% due to an increase in input prices (caustic and energy prices). Higher proportion of specialty products (34%) provided some support to margins.
• Chemical segment – healthy realizations drive margins: Volumes rose 6% YoY on a like-to-like basis. Capacity utilization for the segment stood at 94% v/s industry average of 84%. Chemical revenue stood at INR13.1b. Margins stood at 27.4% (+7pp YoY, +3pp QoQ), led by higher ECU realizations (lower available supply) and increased proportion of value-added products.
• Concall highlights: 1) VSF capacity expansion by 58% to 788KTPA is expected to come in FY21 at a total capex of INR43b. 2) VSF global demand increased at 3% YoY in 3QFY18. 3) Value-added sales increased 14% YoY for 9MFY18. 4) GRASIM will not participate in the recently announced QIP of Idea. 5) VSF prices could soften over the medium term due to commencement of VSF capacities in China.