Company Update : Grasim Industries Ltd By Motilal Oswal Financial Services Ltd
EBITDA below estimate; VSF segment disappoints
* Grasim Industries' 3QFY25 EBITDA was below our estimates due to lowerthan-estimated margins in both the chemical and VSF segments. EBITDA declined ~48% YoY to INR2.7b (42% below our estimate). OPM contracted 4.8pp YoY to 3.3% (est. 5.6%). It reported a net loss of INR1.7b vs. adj. PAT of INR2.4b in 3QFY24.
* The VSF segment’s revenue increased 6% YoY due to improved realization globally and a higher share of specialty fibers in the sales mix, though EBITDA declined ~18% YoY due to higher key RM costs. The Dec-exit price of VSF was similar to the 3QFY25 average price.
OPM down 4.8pp YoY to 3.3%; lower margins reduce profitability
* GRASIM’s standalone revenue/EBITDA came in at INR81.2b/INR2.7b (+27%/-48% YoY and +2%/-42% vs. our estimate) in 3QFY25. It reported a loss of INR1.7b vs. adj. PAT of INR2.4b in 3QFY24.
* Sales volume of the VSF segment was flat YoY due to disruptions in production at the company’s Kharach plant, whereas volume declined ~6% QoQ due to seasonality issues. Blended realization was up 5% YoY (in line). EBITDA stood at INR3.3b (~18% decline YoY; 34% below our estimates) due to higher key raw material prices. OPM declined 2.4pp YoY to 8.4%. EBITDA/kg was at INR15 vs. INR19/INR15 in 3QFY24/2QFY25.
* Chemical segment volumes inched up ~1% YoY in 3QFY25. Realization improved ~10% YoY (2% below). EBITDA increased ~25% YoY at INR3.3b (~7% below) due to improved realization of caustic soda and improved profitability in chlorine derivatives. OPM improved 1.6pp to ~15% (est. 16%).
* Revenue from Paints and E-commerce business increased to INR15.9b vs. INR10.5b in 2QFY25. Loss in new high-growth businesses stood at INR3.3b vs. INR1.3b/INR3.5b in 3QFY24/2QFY25.
* In 9MFY25, revenue/EBITDA/adj. PAT stood at +19%/-49%/-61% YoY. OPM dipped 5.3pp to ~4%. In the VSF segment, revenue/EBITDA came in at +6%/- 2% YoY, whereas in the Chemicals segment revenue/EBITDA stood at +4%/+6% YoY.
Highlights from the management commentary
* The Board has approved the establishment of a 110 KTPA Lyocell production facility, the fastest-growing specialty cellulosic fiber, at Harihar, Karnataka. The first phase, with a capacity of 55KTPA, is expected to be completed in the next two years at a capex of INR13.5b.
* In 3QFY25, international caustic soda spot prices (CFR-SEA) rose by 16% YoY and 10% QoQ to USD516/ton from USD444/ton marking the highest level since 1QFY24. This led to improved domestic realizations in line with global trends. However, there were continued negative chlorine realizations due to oversupply, which limited the growth of ECU realizations.
* The company commenced commercial production at Chamarajnagar (Nov’24) and Mahad, which is expected in 4QFY25. Management highlighted it is gaining market share across most markets with a rapidly expanding distribution network and brand visibility backed by superior product quality. Capex till Dec’24 is INR90.2b; ~90% of the project cost.
* The company’s MD, Mr. Harikrishna Agarwal, requested an early retirement, and Mr. Himanshu Kapania will be the new MD w.e.f. 1 st Apr’25. Himanshu Kapania has been with the group for over 24 years and has currently been designated as Business Director - Birla Opus Paints.
Valuation and view
* We have a BUY rating on the stock based on the SoTP valuation. We will review our assumptions after the concall on 10th Feb’25
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
