Fundamental AnalysisIndia

Grasim Industry

Overall Rating: Rocket

What is the national economic outlook?

  • How well are we recovering from the pandemic? [High 🟢]
    • Overall the Indian economy is posting a strong recovery post the 2nd COVID wave. Though there is recent concern on the rising inflations, the majority of the pundits still believe it to be transitory.
    • Following the Covid induced lockdowns, Indian economic growth is continuing to recover. The second wave of Covid-19 has not affected the country’s merchandise trade. Compared to June 2020, exports increased by 48.3 per cent to $32.5 billion in June 2021.
  • Change in purchasing power [High 🟢]
    • Based on FY20 data, the overall purchasing power of the Indian customer is on the rise and poses a strong economy in the immediate future.

What is the industry outlook?

  • What is the current industry category for the company?
    • Conglomerate
  • What are the growth prospects? [High 🟢] 
    • Conglomerates such as Grasim which work around a wide array of industries tend to benefit from diversification. Other conglomerates have seen a similar growth driven mostly by one of the sectors to compensate for the COVID downside on the other one. In short, conglomerate takes years to build but pose strong potential growth prospects even in the time of uncertainty. 
  • What is the competitor landscape? [Medium🟠]
    • Though GRASIM as a whole does not face direct competition but do have indirect competitiveness through players in each of the industry GRASIM operates in. Major competitors include – Lenzing, Teijin Limited, Pooley Company, Fos Manufacturing, Polyfiber Industries, China Bambro Textile, TEOCO, Reliance Industries, Future Consumer ltd., Razorsight and 3M.
    • In spite of competition in the market, the company has its dominance in their diversified sectors. After the strong financial results, the company is going to give tough fights to its peers.
  • What is the company profile?
  • Business Overview
    • Grasim Industries Limited operates in India and internationally in the fields of fibre, yarn, pulp, chemicals, textiles, fertilizers, and insulators. Through its segments of Viscose, Chemicals, Cement, Financial Services, and Other, the company delivers its products and services. 
  • Financials
    • How are company financials changing?
      • The company posted another power-packed recent financials.
      • The company has released a Quarterly net profit of Rs.1715.49 Cr. in March 2021 up 13.92% YoY. 
      • Consolidated EBITDA increase by 86% YoY at ₹4,736 Cr.  
      • Consolidated revenue for Q1FY22 was increase by 53% YoY at ₹19,919 Cr.
      • EPS increased from Rs 22.94 to Rs 26.13 in March 2021. The Net sales are up by 22.6% YoY to Rs 24398.92Cr.
  • What are the stand-alone future financial prospects and future pipelines? [ High 🟢]
    • The company has posted good results and has a positive financial trend with its total borrowings puts financial prospects from mid to high range.
    • The Grasim industry recently invested over Rs 2,600 crore in CAPEX as capital expenditure for the financial year 2022 in the Viscose Staple Fibre (VSF) business.
    • The company has also recently announced that it will invest Rs 5,000 crore in its paint business over three years. 
    • The company plans to expand the production of capacity of sulphuric acid from 1,02,300 TPA to 1,82,500 TPA, carbon disulphide from 23,725 TPA to 34,675 TPA and captive power plant capacity from 25MW to 55 MW. 
  • Beyond the numbers – ProCapitas Think Tank 🧠
    • Let’s look beyond these numbers and try to answer – “What Matters”
      • Why so much movement in the product bag?
        • Well GRASIM has been very agile and smart here. Entering into the paint industry is something that the company decided on early this year. Given the double-digit growth, entering into product line complementary to their chemical business.
        • At the same time, the release of capital from the sale of the fertilizer business would help company focus on the core business.
      • Are the consolidated financials the true picture of what happened to GRASIM in COVID?
        • Well, not exactly. Though we see some YoY growth, the majority of it is driven by a financial businesses sector which experiences an annual growth of around 15%.
        • Though few sectors such as Viscose and Chemical experienced a contraction, the company managed to compensate some of the losses by making up higher % margins through cost reduction and synergies.
        • The future lies in how the company would build on its focus on core business and launch a complimentary product line.

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