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Grasim Industries
VSF - The Gamechanger
Your success is our success
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Grasim’s VSF business to drastically alter Grasim’s growth profile. Expect standalone EBIDTA CAGR of 16.3% over FY1215E led by VSF volume growth of 12.2% CAGR
n
Higher capacity(164k tons VSF capacity nearing completion)
+ Global cost leadership (captive 85% pulp & 100% caustic soda) to drive VSF volumes & help re-gain market share
n
VSF price outlook to improve over expected bottoming out of cotton prices led by sharp decline in global cotton production
n
Higher contribution of standalone earnings to drive down current holdco discount of 49%+ to more reasonable levels.
Building in a 25% holdco discount and valuing Viscose business at 6X FY14E EBIDTA, BUY with a TP of Rs.3,700
October 9, 2012
Rating
Previous Reco
Buy
Buy
CMP
Target Price
Rs3,309
Rs3,700
EPS Chg FY13E/FY14E (%)
+2.9/+0.4
Target Price change (%)
14
Nifty
5,704
Sensex
18,793
Price Performance
(%)
1M
3M
6M 12M
Absolute
15
26
27
45
5
17
17
21
Rel. to Nifty
Source: Bloomberg
Relative price chart
3400
Rs
%
30
3160
22
2920
14
2680
6
2440
-2
2200
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Gr asim Industries (LHS)
Aug-12
Grasim’s growth profile to witness a marked change, led by VSF business
We expect Grasim’s VSF business to drastically alter Grasim’s growth profile. Unlike its past performance, which was largely dominated by the cement business, we expect its
VSF business to meaningfully contribute to earnings, going ahead. Grasim’s standalone
VSF revenues grew at tepid pace of 9.6% CAGR over FY08-12 on the back of severe capacity constraints restricting volume growth to 3.6% CAGR. However, with Grasim’s
VSF capacity expansion (~50% of current capacity) nearing completion, we see its standalone financials witnessing a dramatic shift in growth profile.
VSF - The Gamechanger
Your success is our success
n
Grasim’s VSF business to drastically alter Grasim’s growth profile. Expect standalone EBIDTA CAGR of 16.3% over FY1215E led by VSF volume growth of 12.2% CAGR
n
Higher capacity(164k tons VSF capacity nearing completion)
+ Global cost leadership (captive 85% pulp & 100% caustic soda) to drive VSF volumes & help re-gain market share
n
VSF price outlook to improve over expected bottoming out of cotton prices led by sharp decline in global cotton production
n
Higher contribution of standalone earnings to drive down current holdco discount of 49%+ to more reasonable levels.
Building in a 25% holdco discount and valuing Viscose business at 6X FY14E EBIDTA, BUY with a TP of Rs.3,700
October 9, 2012
Rating
Previous Reco
Buy
Buy
CMP
Target Price
Rs3,309
Rs3,700
EPS Chg FY13E/FY14E (%)
+2.9/+0.4
Target Price change (%)
14
Nifty
5,704
Sensex
18,793
Price Performance
(%)
1M
3M
6M 12M
Absolute
15
26
27
45
5
17
17
21
Rel. to Nifty
Source: Bloomberg
Relative price chart
3400
Rs
%
30
3160
22
2920
14
2680
6
2440
-2
2200
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Gr asim Industries (LHS)
Aug-12
Grasim’s growth profile to witness a marked change, led by VSF business
We expect Grasim’s VSF business to drastically alter Grasim’s growth profile. Unlike its past performance, which was largely dominated by the cement business, we expect its
VSF business to meaningfully contribute to earnings, going ahead. Grasim’s standalone
VSF revenues grew at tepid pace of 9.6% CAGR over FY08-12 on the back of severe capacity constraints restricting volume growth to 3.6% CAGR. However, with Grasim’s
VSF capacity expansion (~50% of current capacity) nearing completion, we see its standalone financials witnessing a dramatic shift in growth profile.