Grasim Industries posts a stellar Q1FY23 results with highest ever EBITDA

Grasim Industries Limited, is the flagship company of the global conglomerate Aditya Birla Group. It was first established in 1947 as an Indian textile business. Today, it has developed into a dominant, diversified player with a leadership presence in a number of industries.

It is the biggest manufacturer of linen, insulators, chlor-alkali, and viscose staple fibre in India. It is also India’s largest cement producer through its subsidiary, UltraTech Cement and, and a leading financial services powerhouse via Aditya Birla Capital . Additionally, Grasim recently announced its entry into the decorative paints market.

Grasim Industries Ltd on 12^th August 2022 announced their Q1FY23 results, where they reported the highest ever EBITDA and margin % and robust double digit YoY growth in revenue and profits. Currently Grasim share price is trading 26% above its June 2022 levels. So, let’s now analyse their Q1FY23 thoroughly and foresee their future.

Key highlights of Grasim Industries Ltd Q1FY23

• Grasim Industries revenue from operations was up 93% at Rs 7,253 crore in Q1FY23, while up 13% QoQ
• Grasim Industries reported a net profit from core businesses at Rs 809 crore in Q1FY23, which grew 68% YoY, while it fell 24% QoQ
• The viscose staple fibre (VSF) division had sales volume of 197,000 tonnes, an increase of 10% sequentially and 76% YoY
• 51,000 tonnes of the quarter’s sales volume of VSF came from the recently inaugurated 600-ton per day brownfield factory at
• Grasim Industries’ Q1FY23 standalone EBITDA of Rs 1,320 crores, up 78% YoY, was much better than market analysts’ consensus projections due to greater VSF volumes (94% utilisation of new capacities) and record profitability (30% EBITDA margins) in chemicals
• The VSF segment’s EBITDA of Rs 500 crore increased 3% YoY but nearly doubled sequentially
• Despite low chlorine demand, the chemical segment’s EBITDA increased by 193% YoY and 62% sequentially to Rs 890 crore

Grasim Industries results Q1FY23: PAT grew 68% YoY along with 93% YoY rise in Revenue

Grasim reported a net profit from core businesses at Rs 809 crore in Q1FY23, which grew 68% YoY from Rs 482 crores in Q1FY22, beating analysts’ estimates of Rs 637 crore. While Revenue from operations was up 93% at Rs 7,253 crore during Q1FY23 as against Rs 3,763 crore in the Q1FY22.

While on a sequential basis, PAT fell 24% to Rs 809 crores in Q1FY23 from Rs 1068 crores in Q4FY22, despite 13.7% QoQ increase in revenue from Operations to Rs 7253 crores in Q1FY23 from Rs 6376 crores in Q4FY22.

The viscose staple fibre (VSF) division had sales volume of 197,000 tonnes, an increase of 10% sequentially and 76% YoY, with domestic sales contributing 94% of the total. The demand for textiles in India remained robust throughout the quarter. 51,000 tonnes of the quarter’s sales volume came from the recently inaugurated 600-ton per day brownfield factory at Vilayat.

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VSF Business updates

The covid-related lockdown enforced in key Chinese cities combined with lower ordering by US and European merchants in expectation of a slump in demand are hurting the global textile industry. In China, the average VSF plant operating rate fell from 81% in Q4FY22 to 76% in Q1FY23. In Q1FY23, the average number of inventory days for fibre was lower, at 18 days (from 20 days in Q4FY22).

VSF’s business revenue increased by 104% YoY and 13% QoQ to Rs 4300 crores. VSF sales for the quarter was Rs 580 crores, while EBITDA was Rs 940 crores. In comparison to RMB 12903 in Q4FY22, the average price for China VSF increased to RMB 14685 in Q1FY23. Sales of VSF value-added products increased 39% YoY in Q1FY23.

The Chlor-Alkali business posted its best quarterly result since its establishment, led by a sequential improvement in ECU (Electro Chemical Unit) and increased sales volume. The chemical industry is working to improve the proportion of renewable energy in power consumption from 7.9% in the Q1FY23 to 14% in the Q1FY24.

Advanced material business reported a sequential improvement in financial performance with better realisation and some easing of the cost pressure

Grasim Industries results Q1FY23: Highest ever EBITDA which grew 78% YoY

Grasim Industries’ Q1FY23 standalone EBITDA of Rs 1320 crores, up 78% YoY, was much better than market analysts’ consensus projections due to greater VSF volumes (94% utilisation of new capacities) and record profitability (30% EBITDA margins) in chemicals. Additionally, this is the largest EBITDA that Grasim Industries has ever reported in quarterly statistics.

The VSF segment’s EBITDA of Rs 500 crore increased 3% YoY but nearly doubled sequentially. Better realisation and sales volumes, which partially offset the rise in input costs for sulphur, caustic soda, coal, and other items, contributed to the sequential improvement in VSF EBITDA.

Despite low chlorine demand, the chemical segment’s EBITDA increased by 193% YoY and 62% sequentially to Rs 890 crore. Although user industrial sectors like dyes and pigments contributed to a lower-than-expected chlorine realisation, captive chlorine consumption for value-added products rose during the quarter.

Prices for caustic soda increased globally, averaging $769/MT in Q1 FY23 compared to $719/MT in Q4 FY22 due to factors such as supply chain disruption and rising energy costs. A weakening currency and steady demand helped to further bolster domestic caustic soda prices. With a utilisation rate of 89%, sales of caustic soda increased by 17% YoY and 2% sequentially in Q1FY23 to 278,000 tonnes.

Grasim Industries results Q1FY23: Capex plans of Rs 18000 crores for next 3 years

Grasim Industries will incur significant capital expenditures of Rs 18,000 crores over the years FY22 to FY25E, including its planned investments of Rs 10,000 crores in paint over the next three years and Rs 2,000 crores in a B2B digital platform for the procurement of construction supplies.

Grasim has already invested 350 crores of the 3120 crores it plans to spend on capital expenditures in FY23. This sum does not include capex on paints or the recently announced entry into the B2B market. Till June 22, total capital expenditures for the paints industry totalled Rs. 830 crores, of which Rs. 210 crores were spent in Q1FY23. With the start of civil work at 4 of its 6 sites in the paints industry, project execution is proceeding as planned. The management anticipates the paints sector to begin reporting revenues in Q4FY24 or FY25.

Further, their Consolidated net debt increased from Rs 4300 crores in Q4FY22 to Rs 6800 crores in Q1FY23, with a consolidated net debt / EBITDA ratio of 0.32x (unchanged QoQ).

Technical Analysis of Grasim Industries share price

Grasim Industries Limited share price has delivered 123% returns in the last three years. Grasim stock reached its all time high of 1929 in January this year post which it has dropped 16.4%. The Grasim stock has bounced from its recent lows in June 2022 and is currently trading around 1620 levels. The 50 EMA went below 100 and 200 EMA in May 2022 and is still below them.

Post announcement of Q1FY23 results the Grasim share didn’t make any significant move and is close to recording a bullish EMA crossover. Therefore, investors should wait before purchasing the stock for the technical indication and then invest with a medium to long term view. Grasim Industries hold strong potential to deliver robust above average return in the market given easing of harsh market conditions and completion of robust Capex plans.

ICICI Securities said, “Factoring in better margins, we raise our standalone FY23-24E EBITDA by 10-21% and increase our target price to Rs1,725/sh (earlier: Rs1,580/sh) based on an unchanged 9x FY24E EV/E and assuming 50% holdco discount to its various holdings. Maintain ADD. Key risk: Lower demand / pricing in VSF / chemicals.”

Our view

As realizations in the VSF and caustic soda industries are also decreasing, Grasim costs are anticipated to remain a source of worry. Cotton prices have decreased since June 2022 due to concerns that a worldwide recession may cause a decline in demand. Even the price of caustic soda began to decline at the end of June and is currently $650/MT.

Analysts predicted that the company’s near-term margins would be negatively impacted by the recent decrease in VSF pricing in China as well as the lower orders placed by US and European merchants in anticipation of a downturn in demand. Prices for caustic soda have decreased on international markets; as a result, pressure may be applied to chemical segment margins going forward.

In contrast, it’s anticipated that continuing expansions in chemicals and VSF will result in higher quantities. In light of this, analysts anticipate an 11% volume compound annual growth rate in both VSF and caustic soda over the course of FY22–24. The verdict on the Univest app is that the company’s fundamentals are sound post the results. The Grasim stock is strong on the short term indicators offering an entry point for the short term and one can continue to hold for a longer period if the long term indicators turn strong from the currently neutral position.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

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