BackBetter performance of VSF boosts Grasim Industries’ Q4 results
It is encouraging that the company has managed to reduce its debt significantly. At the end of financial year 2021, standalone net debt dropped to Rs914 crore from Rs2,999 crore last year
PremiumMUMBAI: Grasim Industries Ltd’s results for the March quarter were helped by a decent recovery in its VSF (viscose staple fibre) segment. Last quarter, Grasim’s standalone revenues rose 19% sequentially to Rs4,394 crore. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin expanded 102 basis points on quarter to 18.5%. One basis point is one-hundredth of a percentage point.
The VSF segment reported best ever Ebitda of Rs548 crore in Q4FY21, said Grasim in its investor presentation. Including viscose filament yarn, overall viscose business Ebitda stood at Rs625 crore. Strong viscose business performance was led by robust underlying domestic demand, improved realisations and better product mix. “Factoring better VSF profitability, we raise our FY22-23E Ebitda 4-6%," said analysts from ICICI Securities Ltd in a report on 25 May. “Continuing with our thrust on cost saving, total savings of about Rs800 crore was achieved by VSF business during FY21," said Grasim.
In the chemicals business, while revenues increased 15% quarter-on-quarter, Ebitda growth was relatively slower at 4.5% on account of higher costs.
Meanwhile, it is encouraging that the company has managed to reduce its debt significantly. At the end of financial year 2021, standalone net debt dropped to Rs914 crore from Rs2,999 crore last year. During the period, consolidated net debt dropped to Rs8,831 crore from Rs20,882 crore, respectively.
To be sure, the outperformance of shares of Grasim Industries suggests investors are capturing a good portion of the optimism into the stock price. So far this calendar year, the Grasim stock has appreciated 47% compared to around 10% gain in the Nifty 100 index.
Analysts from Motilal Oswal Financial Services Ltd, in a report on 25 May, said, “Given Grasim's conglomerate business structure, we value it on a SoTP (sum-of-the-parts) basis." The broker added, “Our target price values: a) the standalone business (Viscose, Chemicals, etc.) at 6 times FY22E EV/Ebitda, b) UltraTech Cement at a 50% holding company discount to our TP, and c) other listed investments (Aditya Birla Capital, Vodafone Idea, Hindalco Industries, and Aditya Birla Fashion and Retail) at a 50% holding company discount to its market price." Accordingly, Motilal Oswal arrives at a fair value of Rs1,475 per share for Grasim Industries.
On Monday, the stock closed at Rs1,370.15 on the National Stock Exchange. It traded marginally lower on Tuesday in early deals.
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