Grasim Industries
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Showing posts with label Grasim. Show all posts
Showing posts with label Grasim. Show all posts
Friday, January 29, 2010
Wednesday, January 27, 2010
Monday, November 30, 2009
Wednesday, October 21, 2009
Grasim Industries
We recommend a sell in the stock of Grasim Industries from a short-term perspective. It is evident from the charts that the stock was on an intermediate-term uptrend from December 2008 low of Rs 872 to July 2009 high of Rs 2,938. However, after encountering key resistance around Rs 2,900, the stock reversed direction triggered by negative divergence in the weekly relative strength index (RSI). It formed a double top, a top reversal pattern spanning between mid-July and early October with baseline at Rs 2,465. On October 9, the stock conclusively broke through this pattern by tumbling almost 3 per cent. Subsequently, it penetrated the intermediate-term uptrend-line and continued its decline. The stock is currently trading well below its 21-day and 50-day moving averages. The daily RSI is featuring in the bearish zone and weekly RSI is slipping towards this zone in the neutral region. We are bearish on the stock from a short-term perspective. We anticipate the stock’s decline to continue until it hits our price target of Rs 2,140. Traders with a short-term perspective can sell the stock while maintaining a stop-loss at Rs 2,450.
via BL
Sunday, October 11, 2009
Grasim Industries
With Grasim Industries’ stock price correcting by 11 per cent over the past week, the market appears to have largely discounted the marginal value erosion that shareholders are likely to suffer due to the transfer of the company’s cement business to a subsidiary. Except for this ‘holding company’ discount, the move to de-merge the cement business does not have any major negative implications for Grasim investors.
Investors can hold the stock for the present, as listing of the cement business has the potential to discover a better price for it than it currently enjoys. Devoid of cement, Grasim will be a pure VSF (viscose staple fibre) and chemicals manufacturer and is likely to see lower valuation multiples. Post-demerger, Grasim is likely to be valued more for its group holdings — the stake in UltraTech Cement and Samruddhi Cement together with investments in group companies such as Hindalco Industries, Idea Cellular, L&T. The company’s cash-rich status and plans to expand its VSF capacity by 25 per cent and increase its global market share may also prove value-accretive for the core business.
What is the deal?
Under the demerger scheme announced last week, Grasim’s shareholders are promised one share in the new subsidiary (Samruddhi Cement Limited — SCL) for every share held by them in the parent entity. Grasim’s shareholders are to get a direct exposure to the cement business with a 35 per cent stake in SCL (the remaining 65 per cent to be held by Grasim).
But is this deal a value-eroding one for the shareholders of Grasim Industries? A rough calculation, based on the segment results reported by Grasim in 2008-09, suggests it is not. Consider this:
The non-cement businesses of Grasim (pulp, chemicals and textiles divisions) reported operating profits of about Rs 935 crore in 2008-09. This works out to net profits of about Rs 522 crore, after apportioning interest costs (based on liabilities), depreciation and taxes, translating into per share earnings of Rs 57 on Grasim’s equity base.
Assuming this business manages a PE multiple of about eight times, post demerger, Grasim’s residual businesses will give the holders of the stock a value of only Rs 455 per share. Investment in group entities including the interest in UltraTech Cement will bring Rs 858 per share at today’s market prices.
Based on the cement division’s operating profit of Rs 1,912 crore in 2008-09, net profits of about Rs 1,011 crore and per share earnings of about Rs 39 appear likely for the cement subsidiary — Samruddhi Cement. At a PE multiple of about 10 enjoyed by cement companies now, as Samruddhi lists it could trade at a price of about Rs 390. Assuming that Grasim’s 65 per cent stake in Samruddhi is valued at a 10 per cent discount due to the indirect holding, the value of this holding works out to Rs 645 per Grasim share.
This calculation suggests that the value of Grasim, post-demerger, may work out to about Rs 1,958 per share, with Rs 455 for the core business and the remaining for its investment book and holding in Samruddhi.
Investors will in addition be entitled to one Samruddhi share valued at Rs 390, taking the total value to Rs 2,348, not much below current market price.
VSF Business
Valuations apart, what are the prospects for Grasim, post-demerger? Grasim derived close to 75 per cent of its revenues from the cement business last year. With cement being hivedoff into a separate subsidiary now, Grasim’s core revenue generating business will be textiles.
The company’s fibre division manufactures an artificial fibre — viscose staple fibre (VSF). The company claims to meet almost 98 per cent of India’s VSF requirements. But as a significant portion of the segment’s revenues are from overseas, this division didn’t perform well in 2008-09. The company’s VSF sales volume was down 12 per cent in the last year.
Over the last five years, the VSF segment has posted less than one per cent annualised volume growth, with realisations lifting overall growth rates.
The challenges to the VSF business come from rising input prices, global economic slowdown and the related fall in textile exports to countries such as the US, Brazil and Turkey. With small and mid-sized players going though a squeeze, Grasim plans to take this as an opportunity to spread its wings in the global VSF market (it holds a current share of 10 per cent).
Plans have been outlined to set up an 80,000 tonnes per annum VSF plant in Vilayat, Gujarat, raising its capacity by 25 per cent at an investment of Rs 1000 crore in the next three years.
The carving out of the cement division will reduce Grasim’s debt burden (70 per cent of the company’s overall debt is for cement related investments) giving it leeway for fresh borrowings for the new investment activity.
However, demand and prices need to catch up to make Grasim’s VSF division a lucrative investment for investors.
Chemicals
Grasim has a capacity of 2.58 lakh tonnes per annum for caustic soda. This division mainly caters to the VSF business’ raw material requirements, but has diversified into products such as hydrogen gas, bleaching powder, hydrochloric acid, etc. This division’s volume sales rose 11 per cent and margins (operating) expanded 3 per cent points in 2008-09. CAGR growth in sales volumes of this division over the past five years were at 6 per cent. Though the company is taking initiatives to cut costs in this division there are no expansion plans.
group companies
Post the de-merger it is Grasim’s investment book that will hold greater value for investors than its core business, the major components being holdings in UltraTech Cement and Samruddhi Cement.
The other listed companies in which Grasim holds a stake are Hindalco Industries, Idea Cellular and Larsen & Toubro. In all these three companies, Grasim holds less than a 6 per cent stake each.
The step-up in revenues in the subsidiaries — UltraTech Cement & Samruddhi Cement — and the other group companies will be closely watched by the market as it values Grasim when Samruddhi lists soon, as proposed by the company.
Samruddhi Cement
Grasim’s entire cement business — grey cement (of 25.7 mtpa capacity), white cement (of 0.6 mtpa capacity), ready-mix concrete (36 plants of 6.8 million cubic metres capacity) together with the 268 MW capacity thermal power plants have been carved out into the subsidiary — Samruddhi Cement.
Grasim had spent Rs 1,467 crore in the last year for various capex activities in cement and from now it is expected that Samruddhi Cement will carry on with the capital outlay plans. Grasim had outlined Rs 2,105 crore over the next two years for completion of existing projects, adding captive thermal power plants and waste heat recovery systems.
When Samruddhi Cement merges with UltraTech Cement in its “next natural step” as the company calls, shareholders would gain from higher earnings that follow from higher volumes and higher market spread.
However, the price at which Samruddhi lists in the market and the swap ratio that UltraTech offers Grasim’s investors will be key factors that would determine investors’ loss/gain.
via BL
Tuesday, October 06, 2009
Monday, October 05, 2009
Monday, September 14, 2009
Monday, August 03, 2009
Friday, May 22, 2009
Monday, May 11, 2009
Sunday, April 19, 2009
Grasim Industries
Investors in the stock of Grasim Industries can hold the stock. The company’s impressive capacities post-expansion are set to support its topline growth, even as cement despatch numbers suggest that the sector has managed to sidestep the worst of this slowdown. The sharp correction in global coal prices from $193 last year to $62 now will help the company expand margins by saving significantly on fuel cost. Grasim Industries imports nearly one-fourth of its coal requirements. At Rs 1,634, the stock trades at an attractive price-to-earnings ratio of 8 times (lower than ACC that trades at 10 PE).
The demand-supply situation is also conducive now for the cement manufacturers. Higher demand from government-backed infrastructure projects and supply shortage in some pockets of the country are contributing to a firm trend in cement prices. Between February and April this year, prices have increased, on an average, by Rs 15-20 per 50 kg bag.
Expansions sweep capacity issues
Grasim Industries recently commissioned work at its new 3.3-million tpa clinker capacity at Kotpuli, Rajasthan. With this, the company’s total capacity has risen to 21.3 mtpa. This would help the company improve volumes tonnes and retain market share as demand revives. There are already signs of demand picking up with all-India despatches for the March quarter up by 8.5 per cent. In the Northern region, particularly, the industry estimates despatches to have grown by 16.8 per cent. Grasim has outlined a capex of Rs 940 crore in 2009-10, of which Rs 757 crore would be spent on putting up grinding units, RMC plants, waste heat recovery systems, power plants and on modernising and upgrading plants.
With capacity additions and related higher borrowings, interest expenses have been on the rise for Grasim. Till last December (for the nine months of FY-09), the company’s interest expenditure had risen 30 per cent over the corresponding previous period. But what is comforting is that the company’s interest coverage ratio is still a comfortable 13 times, superior to most Sensex companies. Even if the company’s interest cover comes down to half the present (six times) levels, the company would still be well-placed to service debt.
The company’s debt-to-equity ratio stands at a moderate 0.4. Cash profits for the first nine months of 2008-09 sttod at Rs 1,743.5 crore, lower by just 8 per cent compared to the previous year.
Cost pressures to reduce
Grasim’s cement division, which contributes nearly 80 per cent of the group’s earnings, is set to see cost benefits from the sharp fall in global coal and pet coke prices, which are key inputs.
One-fourth of the company’s fuel requirements are met by imported coal and another one-fourth by pet coke and waste fuel, with the balance by coal from linkages and auctions.
Power and fuel expenses, which are 20 per cent of the company’s sales, were higher by over 45 per cent year-on-year during the third quarter of 2008-09.
Lower thermal coal prices, which had already fallen by 45 per cent from their July 2008 peak, did not reflect in the numbers as the company had locked into long-term contracts. High-cost inventory eroded savings made from the company’s cost-cutting efforts.
The effect of reduced coal price will, however, be seen from this quarter as coal stock piles have been substantially reduced. The cut in diesel prices by Rs 2 per litre will also to an extent bring down freight expenses for Grasim.
Realisation inches UP
In the third quarter of FY-09, realisations across Grasim’s divisions were higher but for the VSF business, which remained a drag on profits. Realisation in the cement division was up 6 per cent and RMC up 2 per cent over the corresponding quarter last year. The Viscose Staple Fibre division saw realisations dropping by 11 per cent on a fall in domestic and export demand.
Cement prices have been inching higher since the beginning of this year; prices have risen by around Rs 10-15 per bag between January and March this year. The improved demand follows increased orders from government infrastructure and rural housing projects Higher prices with despatches growth of around 9 per cent in the March quarter are expected to support sales growth in the period.
While the VSF division might not post encouraging numbers following the fall in VSF prices globally, one can expect decent sequential growth in earnings for the March quarter.
via BL
Wednesday, November 26, 2008
Tuesday, October 28, 2008
Monday, September 29, 2008
Wednesday, August 27, 2008
Thursday, July 31, 2008
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