Grasim Industries sha reprice: The textile manufacturer Grasim Industries has reported a 35.6% YoY rise in profit at Rs 480 crore for the quarter ended March 31, 2021. It had reported a profit of Rs 354 crore in the corresponding quarter of the last financial year. On a standalone basis, the sales grew 18.4% to Rs 4,394 crore in the period under observation as compared to Rs 3,712 crore posted last year. The EBITDA grew 149% to Rs 810.6 crore as against Rs 325 crore posted last year. The Margin improved to 18.4% in Q4FY21 as compared to 8.8% posted in Q4FY20. The board has recommended a dividend of Rs 5/equity share and a special dividend of Rs 4/equity share taking the total dividend to Rs 9/equity share. Grasim industries share price today is trading flat, at Rs 1374, the stock made high of Rs 1399.

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Sharekhan says that Grasim Industries presented restated numbers including the financials of wholly-owned subsidiary Grasim Premium Fabric as an effect of amalgamation w.e.f. appointed date April 1, 2019 in its textile division. Standalone net sales rose 18.4% yoy (up 18.9% yoy) at Rs. 4,394 crore led by strong rise in both Viscose (up 22.9% yoy) and chemical (up 14.1% yoy) revenues. The other businesses (textile and insulator) saw a 1.7% yoy rise. A strong surge in VSF prices (Chinese VSF prices rose from RMB 12,800 in January 2021 to RMB 15,800 in March 2021) led by strong consumer demand, increased re-stocking and rise in cotton prices (viscose volumes rose by 8.2% yoy).

Grasim’s chemical division recorded a volume growth of 6% yoy driven by demand from end-user industries and strong performance from advanced materials (epoxy). Standalone OPM stood at 18.5% (up 967 bps yoy, up 102 bps qoq) driven by Viscose division (margins at 24.5% which were up 1178 bps y-o-y, up 173 bps qoq). The spread between VSF and pulp bouncing back to FY2019 level led by sharp increase in VSF prices led to strong OPM for VSF business. Chemical business too saw 272 bps yoy rise in OPM to 12.6% due to higher ECU realization but was under pressure qoq (down 125 bps qoq) owing to increased input costs, explains Sharekhan.

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Technical Analysis on Grasim Industries:

Technical Analyst Nilesh Jain, who is Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking, says that Grasim Industries is in a secular uptrend and has a strong support of a rising trend line which is placed at Rs 1300 levels. Resistance is at Rs 1420 and above that it can move towards new high levels of Rs 1475 and above. Rohit Singre, Senior Technical Research Analyst at LKP Securities said that Grasim overall structure positive and immediate support is coming near Rs 1330 holding above said levels bullish momentum can be witnessed towards strong hurdle zone of Rs 1420 – Rs 1470. 

Overall Grasim’s operating profit rose 149% yoy to Rs 811 cr (up 25.8% qoq). Strong operational performance led to a standalone net profit growth of almost 4x yoy (up 40.7% qoq) to Rs. 503.5 crore. Grasim’s management is hopeful of a V-shaped demand recovery once COVID-led restrictions are reversed. However, rising pulp prices and lowering VSF prices may lead to lower operating margins for the viscose division in the coming quarters. On the chemical business front, caustic prices are expected to improve gradually. The company has outlined capex of Rs 2604 cr (excluding paints business) for FY2022 towards VSF (600TPD - one line each to be completed in Q2FY2022 and Q3FY2022), chlor-alkali (200TPD brownfield capex to be completed over 24 months) and epoxy (125KTPA brownfield capex), says Sharekhan.

Grasim would be incurring additional capex on land acquisition for plant in paints and has maintained its guidance of an Rs 5000 cr investment over three years. The company expects fertilizer business sale to conclude and receive funds by September 2021. Grasim also announced a special dividend of Rs 4 per share apart from Rs 5 per share for FY2021. Sharekhan expects Grasim to benefit from a strong growth outlook for the standalone business and Ultratech apart from getting a premium valuation for its foray into the paints business. Hence, Sharekhan maintains Buy rating on the stock with unchanged price target of Rs 1680.

Grasim Key positives:

Strong operational performance by Viscose division
Expect demand recovery to be as sharp as seen last year with reversal in covid led restrictions
International demand outlook remain strong

Grasim Key negatives:

Chemical OPM affected sequentially by increased cost

Grasim Key Risks:

Funding requirement of its group companies & weakness in standalone business are key risks