Add Grasim, target price Rs 635: ICICI Securities
Factoring-in higher impact of Covid-19, the brokerage has reduced its standalone EBITDA for FY21E-FY22E by 6- 17 per cent.
By ETMarkets.com | Updated:
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ICICI Securities has given an add rating to Grasim Industries with a target price of Rs 635. The share price moved down by -3.25 per cent from its previous close of Rs 601.95. The last traded stock price is Rs 582.40.
The Grasim management expects significant impact in Q1FY21E owing to Covid-19 disruptions, given low utilisation across both VSF and chemicals. Grasim has initiated various measures to optimise fixed costs and preserve cash. Hence, the remaining capex of Rs 49 billion (out of total Rs 78 billion) for raising capacities and modernisation has currently been deferred. The brokerage estimates net debt to further increase to Rs 48 billion by FY22E owing to planned capex and lower profitability.
Investment Rationale
Grasim Industries’ Q4FY20 standalone EBITDA declined 56 per cent year on year to Rs 3.9 billion, in line with the brokerage and consensus estimates, impacted by weak prices across both VSF and chemical segments. Currently, VSF plants are operating at 30-40 per cent and chemical plants at ~60 per cent utilisation post Covid-19 lockdown relaxations. The company remains focused on optimising costs and preserving cash with capex plans being deferred. Net debt increased by Rs 34 billion year on year to Rs 29.8 billion as at Mar’20- end mainly led by investment in subsidiaries/associates.
Factoring-in higher impact of Covid-19, the brokerage has reduced its standalone EBITDA for FY21E-FY22E by 6- 17 per cent. However, factoring-in the recent run-up in stock price of various holdings, the brokerage has increased the target price to Rs 635/share (earlier Rs 585) based on 6 times FY22E EV/E, assuming unchanged 60 per cent holding company discount.
Financials
Promoter/FII Holdings
Promoters held 40.26 per cent stake in the company as of March 31, 2020, while FIIs held 13.52 per cent, DIIs 22.55 per cent and public and others 23.35 per cent.
The Grasim management expects significant impact in Q1FY21E owing to Covid-19 disruptions, given low utilisation across both VSF and chemicals. Grasim has initiated various measures to optimise fixed costs and preserve cash. Hence, the remaining capex of Rs 49 billion (out of total Rs 78 billion) for raising capacities and modernisation has currently been deferred. The brokerage estimates net debt to further increase to Rs 48 billion by FY22E owing to planned capex and lower profitability.
Investment Rationale
Grasim Industries’ Q4FY20 standalone EBITDA declined 56 per cent year on year to Rs 3.9 billion, in line with the brokerage and consensus estimates, impacted by weak prices across both VSF and chemical segments. Currently, VSF plants are operating at 30-40 per cent and chemical plants at ~60 per cent utilisation post Covid-19 lockdown relaxations. The company remains focused on optimising costs and preserving cash with capex plans being deferred. Net debt increased by Rs 34 billion year on year to Rs 29.8 billion as at Mar’20- end mainly led by investment in subsidiaries/associates.
Factoring-in higher impact of Covid-19, the brokerage has reduced its standalone EBITDA for FY21E-FY22E by 6- 17 per cent. However, factoring-in the recent run-up in stock price of various holdings, the brokerage has increased the target price to Rs 635/share (earlier Rs 585) based on 6 times FY22E EV/E, assuming unchanged 60 per cent holding company discount.
Financials
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For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 19901.54 crore, up 3.63 per cent from last quarter sales of Rs 19205.05 crore and down -5.07 per cent from last year's same quarter sales of Rs 20965.25 crore. The company reported net profit after tax of Rs 2278.13 crore in the latest quarter.Promoter/FII Holdings
Promoters held 40.26 per cent stake in the company as of March 31, 2020, while FIIs held 13.52 per cent, DIIs 22.55 per cent and public and others 23.35 per cent.
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