Grasim Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,975
Current market price: Rs2,505
Price target revised to Rs2,975
Result highlights
- The stand-alone revenues of Grasim Industries (Grasim) grew by a robust 37.4% year on year (yoy) to Rs2,490 crore, driven by strong cement realisations and higher volume in viscose staple fibre (VSF) and sponge iron businesses.
- The operating profit grew by 66% yoy to Rs771 crore largely on account of a 77% year-on-year (y-o-y) rise in cement earnings before interest, tax, depreciation and amortisation (EBITDA) to Rs470 crore. Cement margins expanded by 800 basis points on the back of a strong realisation growth. The VSF business witnessed a lower growth of 29% yoy in profits to Rs201 crore as the pulp prices remained high during the quarter.
- The interest expenses were up by 55% yoy to Rs36 crore in the quarter on account of higher borrowings in the period. Depreciation increased by 15% yoy to Rs87.6 crore.
- Boosted by an other income component of Rs78 crore (on account of the deployment of surplus funds), Grasim's net profit rose by 69.1% yoy to Rs437 crore.
- As mentioned in our previous updates, Grasim is augmenting its cement capacity at Kotputli and Shambhupura units by 4 million metric tonne (MMT) each by putting up greenfield plants. The capital expenditure (capex) is progressing well and the new capacities are expected to get commissioned in the first quarter of FY2009.
- The company is expanding its VSF capacity at Kharach, Gujarat from 45,625 tonne to 63,725 tonne and is in the process of getting regulatory clearances for expanding the capacity by 31,000 tonne at Harihar. On completion of both these projects, the company's VSF capacity will expand to 350,000 tonne.
- Looking at the better than expected performance of the VSF and sponge iron businesses, we are upgrading our consolidated FY2008 earnings per share (EPS) estimate by 3.8% to Rs245 and introducing our FY2009 EPS estimate of Rs208.
- At the current market price of Rs2,505 the stock is trading at 10.1x FY2008E EPS and 11.9x FY2009E EPS. Looking at the stability imparted to the company by the higher cash flows from the VSF business, we maintain our Buy recommendation with a price target of Rs2,975 per share.
Shree Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Under review
Current market price: Rs1,091
Q4FY2007 results: First-cut analysis
Result highlights
- Shree Cement's Q4FY2007 net revenues grew by 68% year on year to Rs378 crore on the back of a 36% year-on-year growth in its volumes and a 24% year-on-year growth in its realisations.
- The expenditure (adjusting for the depreciation) grew by 67% year on year to Rs226.9 crore on account of a higher power fuel cost, which witnessed a 51% year-on-year increase (due to the rising pet coke prices) and increased freight cost, which jumped by 35% year on year.
- The operating profit grew by 69% year on year to Rs151 crore whereas the operating profit margin stood at 40%, adjusting for the pre-operative expenses of Rs20 crore pertaining to the earlier years (the company reversed the same in the current quarter).
- The interest cost remained flat on a year-on-year basis but declined sequentially. For the quarter the company provided a depreciation of Rs154 crore, which included Rs114 crore on Unit IV commissioned in March 2007 and Rs20 crore of amortisation of the pre-operative expenditure.
- The tax provision for the quarter was marginal at Rs0.3 crore. On account of the higher depreciation provision, the net profit was lower at Rs23.8 crore.
- The net sales for FY2007 grew by 104% year on year to Rs1,367 crore whereas the net profit grew by 862% year on year to Rs177 crore. Adjusting for the additional depreciation provision of Rs199 crore pertaining to Unit II, the net profit stood at Rs376 crore.
- We are in the process of revising our earnings estimates for the company. We shall update you with the revised earnings and price target as soon as we meet with the management.