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Grasim Industries – Strength from Cement and Fibers

November 1, 2007

Grasim Industries Ltd is drawing strength from almost all its business verticals. Q2 consolidated PAT (Rs6.2bn) grew 50% YoY, driven by Ultratech’s strong performance. Grasim’s H1 FY08 consolidated PAT was Rs12.9bn (up 52% YoY); that is, an EPS of Rs140.70. This is 48% of FY08 consensus EPS estimate of Rs293.50, implying that estimate is reasonable, as H2 is traditionally stronger than H1 for cement and VSF businesses. Q2 was characterised by strong earnings growth in all divisions -VSF (EBITDA growth +82% YoY), cement (25%) and sponge iron (+418%).

Grasim’s total capex plan is Rs61.2bn for FY08 and Rs18.2bn for FY09. In addition to 95KTPA VSF capacity expansion in Kharach (Gujarat) and Harihar (Karnataka), Grasim is planning an 88KTPA greenfield VSF plant in Vilayat (Gujarat). For cement, the company expects Shambhupura (4.4mt) and Ultratech’s Tadipatri (4.9mt) be commissioned by end-FY08 and Kotputli (4.4mt) by Q1FY09.

Macquarie and UBS have upgraded Grasim’s earnings expectations. UBS expects Grasim to report revenue and profit of Rs 16,4022 crore + Rs 2691 crore for FY08 and Rs 18,187 crore + Rs 3022 crore for FY09 resulting in EPS of Rs 293 and Rs 329. UBS has put a BUY with a target price of Rs 4,100 on the stock based on SOTP valuation method.

Macquarie expects Grasim to report an EPS of Rs 280 for FY08 and Rs 308 for FY09 respectively. It has set a Target price of Rs 4,520 on DCF computations.

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