 "Grasim: Firing on all cylinders")
Even as cement demand is on the mend, Grasim’s viscose staple fibre (VSF) and chemicals segments are seeing strong performance. The company’s stock hit an all-time high of Rs 4,113.10 on Wednesday before closing at Rs 4,072.30. Grasim’s exposure to the cement segment is through its 60.25 per cent stake in UltraTech Cement.
During the first nine months of FY16, the company saw strong volume growth of 19 per cent in the VSF business aided by capacity expansions. Realisations, too, have improved 12 per cent to Rs 132.7 a kg over the year-ago quarter’s Rs 118.6 a kg, according to analysts at Religare Institutional Equities. The realisation gains come on the back of shutdown in capacities in China owing to environmental issues. Consequently, the company is expected to post good performance in the March 2016 quarter, too.
Analysts at Macquarie say, “Speciality fibres are the focus for VSF but the chemicals division looks more primed for growth in the near term.”
After the merger with Aditya Birla Chemicals, this division has become a strong area of growth. This merger is likely to result in benefits of scale, better profitability and higher cash flow generation as the capex cycle draws to an end, say analysts.
Both VSF and chemicals segments have seen a strong uptick in return on capital employed (RoCE) to 15-18 per cent from six per cent in FY15 and 20-23 per cent (10-11 per cent in FY15), respectively. Part of this improvement is attributed to better VSF utilisation but analysts at Motilal Oswal Securities say that the more important aspect was 95-100 per cent operating utilisations in both VSF and chemicals segments.
This, coupled with the revival in cement demand, should lead to Grasim's consolidated RoCE to touch 15 per cent and 18 per cent in FY17 and FY18, respectively, compared to 13.8 per cent now. The target price of analysts for the stock is Rs 4,500-5,000.
During the first nine months of FY16, the company saw strong volume growth of 19 per cent in the VSF business aided by capacity expansions. Realisations, too, have improved 12 per cent to Rs 132.7 a kg over the year-ago quarter’s Rs 118.6 a kg, according to analysts at Religare Institutional Equities. The realisation gains come on the back of shutdown in capacities in China owing to environmental issues. Consequently, the company is expected to post good performance in the March 2016 quarter, too.
Analysts at Macquarie say, “Speciality fibres are the focus for VSF but the chemicals division looks more primed for growth in the near term.”
After the merger with Aditya Birla Chemicals, this division has become a strong area of growth. This merger is likely to result in benefits of scale, better profitability and higher cash flow generation as the capex cycle draws to an end, say analysts.
Both VSF and chemicals segments have seen a strong uptick in return on capital employed (RoCE) to 15-18 per cent from six per cent in FY15 and 20-23 per cent (10-11 per cent in FY15), respectively. Part of this improvement is attributed to better VSF utilisation but analysts at Motilal Oswal Securities say that the more important aspect was 95-100 per cent operating utilisations in both VSF and chemicals segments.
This, coupled with the revival in cement demand, should lead to Grasim's consolidated RoCE to touch 15 per cent and 18 per cent in FY17 and FY18, respectively, compared to 13.8 per cent now. The target price of analysts for the stock is Rs 4,500-5,000.