margins under pressure; vodafone- emkay idea concerns...

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Emkay

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore SA: SUNIL TIRUMALAI

India Equity Research | Diversified

November 14, 2019

Result Update

Grasim Industries Refer to important disclosures at the end of this report

Margins under pressure; Vodafone-Idea concerns factored in

CMP Target Price

Rs 734 Rs 894 (▼) as of (November 14, 2019) 12 months

Rating Upside

BUY (■) 21.8 %

Change in Estimates

EPS Chg FY20E/FY21E (%) (9)/(8)

Target Price change (%) (4.8)

Target Period (Months) 12

Previous Reco BUY

Emkay vs Consensus

EPS Estimates

FY20E FY21E

Emkay 31.2 33.4

Consensus 72.5 85.9

Mean Consensus TP (12M) Rs 926

Stock Details

Bloomberg Code GRASIM IN

Face Value (Rs) 2

Shares outstanding (mn) 658

52 Week H/L 960 / 634

M Cap (Rs bn/USD bn) 483 / 6.71

Daily Avg Volume (nos.) 22,98,425

Daily Avg Turnover (US$ mn) 23.1

Shareholding Pattern Sep '19

Promoters 40.2%

FIIs 17.0%

DIIs 22.1%

Public and Others 20.8%

Price Performance

(%) 1M 3M 6M 12M

Absolute 5 - (13) (16)

Rel. to Nifty - (7) (18) (25)

Grasim’s Q2 results missed our estimates, with EBITDA coming in at Rs6.6bn vs. our est.

of Rs7.9bn and OPM at 13.7% vs. our est. of 15.7% due to lower profits in the Chemical

segment. The VSF segment’s EBITDA/kg was at Rs25.1 vs. our est. of Rs25.9/kg.

VSF sales volumes rose 4.4% yoy, while VFY volumes fell 16.7% yoy. Lower realization

(down 9.3% yoy) led to a 6.4pp yoy contraction in VSF segment OPM. OPM of its Chemical

segment contracted 8pp yoy due to lower realization (down 18% yoy/qoq).

Management believes that lower pulp prices (down 22% YTD) will help the VSF segment’s

profits in Q3/Q4. It expects ECU prices to stabilize at Rs31-32/kg, in line with historical

averages. Grasim has not given any guarantee or letter of consent to fund losses of

Vodafone-Idea (VIL) and will not even give any corporate loan to VIL.

We reduce FY20/21/22E standalone EPS by 9.1%/7.5%/5.6% considering lower caustic

soda prices. We believe that the market is already pricing in the repeated equity infusions

into VIL by the company. We maintain Buy and OW stance in sector EAP.

Relative price chart

Source: Bloomberg This report is solely produced by Emkay Global. The following person(s) are responsible for the production of the recommendation:

Sanjeev Kumar Singh

[email protected]

+91 22 6612 1255

Gurpreet Kaur

[email protected]

+91 22 6612 1285

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Grasim Industries (LHS)

Margins under pressure in VSF and Chemical segments: Grasim reported a 38.3% yoy

decline in standalone EBITDA and 714bps yoy contraction in OPM in Q2 as margins in VSF

and Chemical segments remained under pressure. VSF segment’s realization was down

9.3% yoy. VSF sales volumes were up 4.4% yoy (domestic sales at 88% of total volumes, up

4pp yoy), though there was a decline of 16.7% yoy in VFY volumes. The segment’s EBITDA

fell 33.9% yoy with a 6.4pp yoy contraction in OPM. EBITDA/kg was Rs25.1 vs.

Rs38.9/Rs29.9 in Q2FY19/Q1FY20. In the Chemical segment, caustic sales volumes were

down 6.6% yoy. Higher imports, commissioning of new capacities and a negative chlorine

realization led to an 18% yoy/qoq drop in realization of the Chemical segment, which in turn,

resulted in a 40.1% yoy drop in EBITDA and 8pp contraction in OPM of this segment.

Prune FY20/21/22 EPS estimates; maintain Buy: We lower FY20/21/22E standalone EPS

by 9.1%/7.5%/5.6% considering lower caustic soda prices. Management expects a negative

chlorine realization and expects ECU realization for the company to stabilize at Rs31-32/kg

in the next few quarters. VSF prices declined by 8% qoq in Q2 due to capacity additions in

Indonesia and the US-China trade war. Chinese players are incurring losses of USD250/ton

at current VSF prices, which may lead to closure of capacities in the country. This should help

in stabilization of VSF prices. Lower pulp prices (down 22% YTD) will help the VSF segment’s

margins in Q3/Q4. The capacity expansion of VSF and caustic soda would help in the

company’s future growth. We maintain Buy with a revised TP of Rs894 (Rs939 earlier), based

on 6x Sep’21E standalone segment’s EV/EBITDA and a 50% holdco discount for its holdings

in listed investments (Exhibit: 20). We remain OW on the name in sector EAP. The key

downside risk is a higher decline in VSF/caustic soda prices.

Please see our sector model portfolio (Emkay Alpha Portfolio): Cement & Building Materials (0)

Financial Snapshot (Standalone)

(Rs mn) FY18 FY19 FY20E FY21E FY22E

Revenue 1,57,858 2,05,504 2,20,147 2,36,356 2,63,158

EBITDA 30,775 40,712 33,397 40,015 44,937

EBITDA Margin (%) 19.5 19.8 15.2 16.9 17.1

APAT 20,413 28,833 20,548 21,976 25,412

EPS (Rs) 31.1 43.8 31.2 33.4 38.6

EPS (% chg) (7.1) 41.2 (28.7) 6.9 15.6

ROE (%) 16.0 23.5 25.9 23.0 22.3

P/E (x) 23.6 16.7 23.5 22.0 19.0

EV/EBITDA (x) 16.0 11.9 16.0 13.2 11.5

P/BV (x) 1.1 1.2 1.1 1.1 1.0

Source: Company, Emkay Research

Grasim Industries (GRASIM IN) India Equity Research | Result Update

Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore

SA: SUNIL TIRUMALAI November 14, 2019 | 2

Story in Charts

Exhibit 1: VSF (including VFY) volumes increased 2.7% yoy

Source: Emkay Research, Company

Exhibit 2: VSF and other yarn prices have been trending downward


Exhibit 3: VSF EBITDA/ton declined 35.6% yoy


Exhibit 4: Chemical volumes declined 6.6% yoy


Exhibit 5: ECU realization declined 18% yoy/qoq


Exhibit 6: Chemical segment OPM declined 800bps yoy/940bps qoq


Exhibit 7: Grasim’s EBITDA declined 38.3% yoy


Exhibit 8: OPM declined 720bps yoy/320bps qoq


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VSF Sales Volumes Y-o-Y growth (%)

44.3 24.0

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116.7 96.7

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(35.6)

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Chemical Sales Volume Y-o-Y growth (%)

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Chemicals OPM (%)

109.3 70.8

159.8

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26.5 37.2 5.2

40.6 62.6 60.8 89.8

36.1 19.3 6.4 (20.0)(38.3)

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Exhibit 9: Actual vs. Estimates (Q2FY20)

(in Rs mn) Actual Estimate % Variation

Comment Emkay Consensus Emkay Consensus

Sales 47,974 50,447 50,734 -4.9 -5.4 On lower-than-expected caustic soda realization

EBITDA 6,593 7,941 9,644 -17.0 -31.6 On lower-than-expected caustic soda realization

EBITDA margin (%) 13.7 15.7 19.0 -200bps -527bps

Adj. PAT 5,265 5,605 6,840 -6.1 -23.0 On lower-than-expected operating performance

Source: Company, Emkay Research, Bloomberg

Exhibit 10: Quarterly results (Standalone)

(Y/E Mar, Rs mn) Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 YoY (%) QoQ (%) YTDFY19 YTDFY20 YoY (%)

Net Sales 51,185 52,929 53,523 50,006 47,974 -6.3% -4.1% 99,076 97,980 -1.1%

Total Expenditure 40,498 42,403 44,537 41,569 41,381 2.2% -0.5% 80,421 84,373 4.9%

as % of sales 79% 80% 83% 83% 86% 81% 86% 6.1%

Stock -637 -1,670 1,768 -1,433 -500 n/m n/m -1,361 -1,932 n/m

as % of sales -1% -3% 3% -3% -1% -1% -2%

Raw material consumed 23,720 25,547 24,757 24,810 23,473 -1.0% -5.4% 45,350 48,283 6.5%

as % of sales 46% 48% 46% 50% 49% 46% 49%

Purchase of traded goods 669 1,172 232 777 680 1.7% -12.4% 1,269 1,457 14.8%

as % of sales 1% 2% 0% 2% 1% 1% 1%

Employees costs 3,699 3,835 4,251 3,930 4,039 9.2% 2.8% 7,165 7,968 11.2%

as % of sales 7% 7% 8% 8% 8% 7% 8%

Power and fuel 7,933 7,868 7,074 7,348 7,856 -1.0% 6.9% 15,176 15,204 0.2%

as % of sales 15% 15% 13% 15% 16% 15% 16%

Other expenditure 5,113 5,652 6,455 6,137 5,832 14.1% -5.0% 10,250 11,970 16.8%

as % of sales 10% 11% 12% 12% 12% 10% 12%

EBIDTA 10,687 10,526 8,986 8,437 6,593 -38.3% -21.9% 18,656 13,607 -27.1%

Depreciation 1,874 1,928 1,974 2,032 2,085 11.2% 2.6% 3,702 4,117 11.2%

EBIT 8,813 8,599 7,012 6,405 4,508 -48.8% -29.6% 14,954 9,490 -36.5%

Other Income 2,836 600 1,013 847 2,862 0.9% 238.0% 4,053 3,709 -8.5%

Interest 522 413 468 780 861 65.0% 10.3% 1,110 1,641 47.9%

PBT 11,127 8,785 7,557 6,471 6,510 -41.5% 0.6% 17,897 11,557 -35.4%

Tax 160 2,689 2,197 1,553 1,245 676.5% -19.8% 3,078 2,797 -9.1%

Adjusted PAT 10,967 6,097 5,360 4,919 5,265 -52.0% 7.0% 14,819 8,760 -40.9%

APAT after MI 10,967 6,097 5,360 4,919 5,265 -52.0% 7.0% 14,819 8,760 -40.9%

Extra ordinary items -2,800 0 -847 -2,902 0 -2,800 -2,902

Reported PAT 8,167 6,097 4,514 2,017 5,265 -35.5% 161.0% 12,019 5,858 -51.3%

Reported EPS 16.7 9.3 8.2 7.5 8.0 -52.0% 7.0% 26.5 15.5 -41.5%

Margins (%) bps bps bps

EBIDTA 20.9% 19.9% 16.8% 16.9% 13.7% (713.6) (312.9) 18.8% 13.9% -494

EBIT 17.2% 16.2% 13.1% 12.8% 9.4% (782.0) (341.1) 15.1% 9.7% -541

EBT 21.7% 16.6% 14.1% 12.9% 13.6% (817.0) 62.8 18.1% 11.8% -627

EAT 21.4% 11.5% 10.0% 9.8% 11.0% (1,045.2) 113.8 15.0% 8.9% -602

Tax rate 1.4% 30.6% 29.1% 24.0% 19.1% 1,768.0 (487.1) 17.2% 24.2% 701





Exhibit 11: Segment break-up (Standalone)

(Rs mn) Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 YoY (%) QoQ (%) YTDFY19 YTDFY20 YoY (%)

Sales

VSF 26,050 26,167 26,250 25,090 24,310 -6.7% -3.1% 50,850 49,400 -2.9%

Chemical 16,120 15,585 16,880 15,030 13,470 -16.4% -10.4% 31,910 28,500 -10.7%

Fertilizers 7,430 8,680 6,790 6,970 7,210 -3.0% 3.4% 12,640 14,180 12.2%

Textiles 2,980 4,110 4,750 4,370 4,200 40.9% -3.9% 6,540 8,570 31.0%

Insulators 1,110 1,010 1,240 1,100 970 -12.6% -11.8% 2,090 2,070 -1.0%

EBIDTA

VSF 5,760 4,770 4,130 4,420 3,810 -33.9% -13.8% 11,620 8,230 -29.2%

Chemical 4,560 4,410 4,340 4,460 2,730 -40.1% -38.8% 9,510 7,190 -24.4%

Fertilizers 750 810 520 520 490 -34.7% -5.8% 1,050 1,010 -3.8%

Textiles 140 570 520 310 130 -7.1% -58.1% 300 440 46.7%

Insulators 90 30 100 60 (20) n/m n/m 110 40 -63.6%

EBIDTA (%)

VSF 22.1% 18.2% 15.7% 17.6% 15.7% (643.9) (194.4) 22.9% 16.7% -619

Chemical 28.3% 28.3% 25.7% 29.7% 20.3% (802.1) (940.7) 29.8% 25.2% -457

Fertilizers 10.1% 9.3% 7.7% 7.5% 6.8% (329.8) (66.4) 8.3% 7.1% -118

Textiles 4.7% 13.9% 10.9% 7.1% 3.1% (160.3) (399.9) 4.6% 5.1% 55

Insulators 8.1% 3.0% 8.1% 5.5% -2.1% (1,017.0) (751.6) 5.3% 1.9% -333


Exhibit 12: VSF segment performance

VSF segment Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 YoY (%) QoQ (%) YTDFY19 YTDFY20 YoY (%)

Sales volume (Ton) 1,41,000 1,45,400 1,50,000 1,48,000 1,52,000 7.8% 2.7% 2,84,170 3,00,000 5.6%

Realization (Rs/Kg) 180.4 175.8 170.9 165.4 155.9 -13.6% -5.7% 178.9 164.7 -8.0%

EBIDTA (%) 22.1% 18.2% 15.7% 17.6% 15.7% (643.9) (194.4) 22.9% 16.7% -619

EBIDTA/Kg 40.9 32.8 27.5 29.9 25.1 -38.6% -16.1% 40.9 27.4 -32.9%

Op Cost /Kg 139.6 143.0 143.4 135.5 130.9 -6.2% -3.5% 138.1 137.2 -0.6%


Exhibit 13: Changes in estimates

Rs mn FY20E FY21E FY22E

Earlier Revised change Earlier Revised change Earlier Revised change

Sales 2,24,308 2,20,147 -1.9% 2,38,151 2,36,356 -0.8% 2,66,156 2,63,158 -1.1%

EBIDTA 37,407 33,397 -10.7% 41,744 40,015 -4.1% 47,826 44,937 -6.0%

EBIDTA (%) 16.7 15.2 (151) 17.5 16.9 (60) 18.0 17.1 (89)

Net Profit 22,617 20,548 -9.1% 23,748 21,976 -7.5% 26,930 25,412 -5.6%

EPS (Rs) 34.4 31.2 -9.1% 36.1 33.4 -7.5% 40.9 38.6 -5.6%


Exhibit 14: Key assumptions

Particulars FY17 FY18 FY19 FY20E FY21E FY22E

VSF Volume (ton) 4,99,842 5,08,000 5,41,000 5,59,350 6,00,400 6,84,660

Realization/kg* 137 160 155 158 163 168

Source: Company, Emkay Research; *average realization of VSF segment (includes VFY)




Exhibit 15: 1-yr forward P/E chart


Exhibit 16: 1-yr forward EV/EBITDA chart


Factor in worst-case impact of Rs187/share on stock price in our assumptions

Due to VIL’s financial condition, and in response to market fears of Grasim having to pump in

capital again, we have considered the company’s liability toward a potential VIL bailout in our

estimates (we hereby clarify that Grasim is not obliged to do so). According to our calculations,

in the worst-case scenario, the impact on Grasim’s stock price would be Rs187 per share. The

increase in holdco discount reflects the concerns pertaining to the company’s stake in VIL, in our

view.

Exhibit 17: VIL's debt position (excluding spectrum payments)

Debt break-down Rs bn

Bank Debt 312.6

Payable for capex (FY19) 59.8

AGR penalty 390.0

Total pay-out 762.4


Exhibit 18: Grasim's stake in VIL and stakes of its promoters

Total Promoter holding As on Q1-end Equated to 100

Aditya Birla Group 27.20% 38.00%

Of which Grasim 11.60% 16.10%

Vodafone Group 44.40% 62.00%

Total promoter holding 71.60% 100.00%

Source: BSE, VIL, Emkay Research

Exhibit 19: Impact on Grasim's share price

Particulars Impact on Grasim

Grasim’s share in VIL's debt (Rs bn) 123

No. of shares- Grasim (bn) 0.7

Per share impact (Rs) 187

Source: Company, VIL, Emkay Research

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Exhibit 20: SoTP Valuation for Grasim

Particulars Valuation method Unit Sep'21 Rs

UltraTech's Mcap based on our target price Rs mn 13,86,436

HoldCo discount % 50

Grasim's stake % 60

Value of cement stake Rs mn 4,17,525

Value/share 50% HoldCo discount to our PT Rs 636

Value of Grasim's standalone business Rs mn 2,54,855

Value/share 6x for standalone business 388

Value of listed investments Rs mn 34,947


Value of listed investments post HoldCo Rs mn 17,474

Value/share 50% HoldCo discount on CMP Rs 27

VSF & Fibre JV Rs mn 7,750

Value/share 1x P/BV Rs 12

Standalone Net Debt of Grasim* Rs mn 1,60,698

Value/share Rs 245

Aditya Birla Capital Rs mn 1,85,698


Grasim's stake % 54.27

Value of AB Capital's stake in Grasim Rs mn 50,389

Value/share 50% HoldCo discount on CMP Rs 77

Target price Rs 894

CMP Rs 734

UP/(down)side % 21.8

Source: Company, Emkay Research, * includes the fund infusion in VIL as per our worst case

Concall highlights

VIL investment: Management has clarified that Grasim has not given any corporate

guarantee or letter of consent (either verbal or written) to service VIL’s debt. Grasim’s

exposure is not beyond the equity invested by them. The first preference in capital

allocation will be given to business segments of Grasim, followed by financials’

consolidating subsidiaries (Aditya Birla Capital, and UltraTech). Grasim does not have any

compulsion to maintain its stake in non-consolidating investments such as VIL.

VSF segment: VSF prices were under pressure in global markets due to capacity overhang

and the US-China trade war. Grey VSF prices declined by 23% yoy/8% qoq in Q2FY20.

Prices of specialty fibers are resilient and the gap between specialty fiber and VSF has

increased (Modal price is at USD2.6-2.7/kg vs. Grey VSF price of USD1.75/kg). Domestic

VSF demand also has been affected by rising yarn imports. Capacity utilization of VSF in

China increased to 75-80% from 65% in Q1 due to closures of capacity. Management

believes that Chinese players are incurring losses of USD250/ton at current VSF prices. This

should help in stabilization of VSF prices in global markets. Pulp prices have declined by 22%

in YTD FY20 and current prices have come down to USD640/ton from an average of

USD727/ton in Q2. The company will get benefits of lower pulp prices in Q3/Q4 (Rs1bn

cumulative in RM cost) as it takes approx. six months (time lag for VSF prices to get reflected

in RM costs) for the shipments to arrive from Canada and Sweden. Domestic VFY market

size is at 57,000 tons and Grasim is the largest player in India. China has 200KT of VFY

capacities and they export 50% of their production, which impacts global prices.

Chemical segment: A slowdown in economic activities and imports from other countries

have affected caustic soda prices. Chlorine production has exceeded consumption, leading

to negative realization (loss of transportation costs on chlorine sales). Management expects

negative chlorine realization to continue as per the historical trends and believes that higher

ECU realization over the last few quarters was an exception. ECU realization is expected

to stabilize at Rs31-32/kg in the next few quarters. The company’s focus would be on

increasing production of chlorine value-added products (VAPs). The captive consumption

of chlorine increased to 28% in FY19 from 26% in FY17 and should increase to 30-32% in

the next 2-3 years.

Comfortable debt position: Net debt/EBITDA of 2.5-3x is a comfortable benchmark

number for reference. However, management believes that net debt/EBITDA will not

exceed 1.5x at the end of FY20. The company can manage ongoing expansion plans in

the VSF and Chemical segments and there should not be any deferment on the announced

expansion plans.




Key Financials (Standalone)

Income Statement

Y/E Mar (Rs mn) FY18 FY19 FY20E FY21E FY22E

Revenue 1,57,858 2,05,504 2,20,147 2,36,356 2,63,158

Expenditure 1,27,083 1,64,793 1,86,750 1,96,342 2,18,221

EBITDA 30,775 40,712 33,397 40,015 44,937

Depreciation 6,277 7,604 8,344 9,912 11,354

EBIT 24,499 33,108 25,053 30,103 33,583

Other Income 4,640 5,680 5,532 5,814 6,179

Interest expenses 1,281 1,991 4,361 6,340 5,560

PBT 27,858 36,797 26,224 29,577 34,202

Tax 7,445 7,964 5,676 7,601 8,790

Extraordinary Items (2,726) (23,680) 0 0 0

Minority Int./Income from Assoc. 0 0 0 0 0

Reported Net Income 17,687 5,153 20,548 21,976 25,412

Adjusted PAT 20,413 28,833 20,548 21,976 25,412

Balance Sheet


Equity share capital 1,315 1,315 1,315 1,315 1,315

Reserves & surplus 4,46,584 4,18,277 4,34,027 4,50,918 4,70,940

Net worth 4,47,898 4,19,592 4,35,343 4,52,233 4,72,255

Minority Interest 0 0 0 0 0

Loan Funds 29,690 33,046 83,246 75,246 63,746

Net deferred tax liability 18,350 18,789 18,789 18,789 18,789

Total Liabilities 4,95,938 4,71,427 5,37,377 5,46,268 5,54,790

Net block 1,08,166 1,12,322 1,23,978 1,55,566 1,59,212

Investment 3,55,466 2,81,616 3,48,176 3,48,176 3,48,176

Current Assets 66,093 78,862 84,928 92,051 1,02,416

Cash & bank balance 419 425 492 983 1,254

Other Current Assets 0 0 0 0 0

Current liabilities & Provision 41,237 46,705 49,704 53,024 58,514

Net current assets 24,855 32,157 35,224 39,027 43,903

Misc. exp 0 0 0 0 0

Total Assets 4,95,938 4,41,727 5,37,377 5,46,268 5,54,790

Cash Flow


PBT (Ex-Other income) (NI+Dep) 27,858 36,797 20,692 23,763 28,023

Other Non-Cash items (3,829) (4,962) 0 0 0

Chg in working cap (2,797) (10,752) (3,000) (3,311) (4,606)

Operating Cashflow 23,556 25,555 24,721 29,102 31,541

Capital expenditure (10,945) (20,440) (34,328) (15,000) (15,000)

Free Cash Flow 12,612 5,115 (9,607) 14,102 16,541

Investments 0 0 0 0 0

Other Investing Cash Flow 0 0 0 0 0

Investing Cashflow (8,303) (2,191) (31,368) 5,814 6,179

Equity Capital Raised 23 86 0 0 0

Loans Taken / (Repaid) 942 3,504 50,200 (8,000) (11,500)

Dividend paid (incl tax) (4,060) (4,530) (4,797) (5,085) (5,390)

Other Financing Cash Flow 0 0 0 0 0

Financing Cashflow (4,512) (2,990) 41,042 (19,425) (22,450)

Net chg in cash (203) (65) 67 491 271

Opening cash position 465 262 425 492 983

Closing cash position 262 196 492 983 1,254





Key Ratios

Profitability (%) FY18 FY19 FY20E FY21E FY22E

EBITDA Margin 19.5 19.8 15.2 16.9 17.1

EBIT Margin 15.5 16.1 11.4 12.7 12.8

Effective Tax Rate 26.7 21.6 21.6 25.7 25.7

Net Margin 12.9 14.0 9.3 9.3 9.7

ROCE 18.4 22.5 19.6 18.5 19.6

ROE 16.0 23.5 25.9 23.0 22.3

RoIC 22.9 23.9 16.5 17.1 17.0

Per Share Data (Rs) FY18 FY19 FY20E FY21E FY22E

EPS 31.1 43.8 31.2 33.4 38.6

CEPS 40.6 55.4 43.9 48.5 55.9

BVPS 681.3 638.0 662.0 687.7 718.1

DPS 5.5 6.2 6.6 7.0 7.4

Valuations (x) FY18 FY19 FY20E FY21E FY22E

PER 23.6 16.7 23.5 22.0 19.0

P/CEPS 18.1 13.2 16.7 15.1 13.1

P/BV 1.1 1.2 1.1 1.1 1.0

EV / Sales 3.1 2.4 2.4 2.2 2.0

EV / EBITDA 16.0 11.9 16.0 13.2 11.5

Dividend Yield (%) 0.7 0.8 0.9 0.9 1.0

Gearing Ratio (x) FY18 FY19 FY20E FY21E FY22E

Net Debt/ Equity 0.0 0.0 0.1 0.1 0.1

Net Debt/EBIDTA 0.3 0.1 1.6 1.1 0.7

Working Cap Cycle (days) 56.5 56.4 57.6 58.7 59.2

Growth (%) FY18 FY19 FY20E FY21E FY22E

Revenue 52.6 30.2 7.1 7.4 11.3

EBITDA 42.8 32.3 (18.0) 19.8 12.3

EBIT 43.4 35.1 (24.3) 20.2 11.6

PAT 13.4 (70.9) 298.8 6.9 15.6

Quarterly (Rs mn) Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20

Revenue 51,185 52,929 53,523 50,006 47,974

EBITDA 10,687 10,526 8,986 8,437 6,593

EBITDA Margin (%) 20.9 19.9 16.8 16.9 13.7

PAT 8,167 6,097 4,514 2,017 5,265

EPS (Rs) 12.4 9.3 6.9 3.1 8.0


Shareholding Pattern (%) Sep-18 Dec-18 Mar-19 Jun-19 Sep-19

Promoters 40.1 40.2 40.2 40.2 40.2

FIIs 23.5 21.2 20.0 18.3 17.0

DIIs 16.7 17.8 18.7 21.1 22.1

Public and Others 19.7 20.9 21.2 20.5 20.8

Source: Capitaline




RECOMMENDATION HISTORY TABLE

Date Closing

Price TP

Period (months)

Rating Analyst

04-Nov-19 784 939 12m Buy Sanjeev Kumar Singh

23-Sep-19 759 1,055 12m Buy Sanjeev Kumar Singh

14-Aug-19 735 1,039 12m Buy Sanjeev Kumar Singh

25-May-19 910 1,079 12m Buy Sanjeev Kumar Singh

28-Feb-19 777 984 12m Buy Sanjeev Kumar Singh

07-Jan-19 821 1,029 12m Buy Sanjeev Kumar Singh

14-Aug-18 987 1,262 12m Buy Sanjeev Kumar Singh

23-May-18 1,047 1,233 12m Buy Sanjeev Kumar Singh

05-Apr-18 1,094 1,271 12m Buy Sanjeev Kumar Singh

15-Dec-17 1,140 1,420 12m Accumulate Sanjeev Kumar Singh

14-Nov-17 1,207 1,420 12m Accumulate Sanjeev Kumar Singh

06-Sep-17 1,186 1,201 12m Hold Sanjeev Kumar Singh

14-Aug-17 1,109 1,201 12m Hold Sanjeev Kumar Singh

19-May-17 935 1,084 12m Hold Sanjeev Kumar Singh

30-Jan-17 809 876 12m Reduce Sanjeev Kumar Singh

28-Dec-16 677 950 12m Accumulate Sanjeev Kumar Singh


RECOMMENDATION HISTORY CHART

Source: Bloomberg, Company, Emkay Research

640

797

954

1111

1268

1425

16

-No

v-1

6

16

-Ma

y-1

7

13

-No

v-1

7

13

-Ma

y-1

8

10

-No

v-1

8

10

-Ma

y-1

9

07

-No

v-1

9

BUY Hold SellAccumulate Reduce PriceTarget Price



SA: SUNIL TIRUMALAI November 14, 2019| 10

Emkay Alpha Portfolio – Cement & Building Materials

EAP sector portfolio

Company Name BSE200 Weight

EAP Weight

OW/UW (%)

OW/UW (bps)

EAP Weight (Normalised)

Cement & Building Materials 2.04 2.04 0% 0 100.00

ACC 0.21 0.24 14% 3 11.64

Ambuja Cements 0.24 0.10 -57% -13 5.00

Grasim Industries 0.47 0.53 14% 7 26.00

India Cements 0.00 0.00 NA 0 0.00

JK Cement 0.00 0.04 NA 4 2.15

Jk Lakshmi Cement 0.00 0.00 NA 0 0.00

Orient Cement 0.00 0.00 NA 0 0.00

Prism Johnson 0.00 0.00 NA 0 0.00

Ramco Cements 0.16 0.12 -26% -4 5.77

Sanghi Industries 0.00 0.00 NA 0 0.00

Shree Cements 0.28 0.22 -22% -6 10.87

Star Cement 0.00 0.00 NA 0 0.00

Ultratech Cement 0.69 0.79 14% 10 38.56

Century Plyboards 0.00 0.00 NA 0 0.00

HSIL 0.00 0.00 NA 0 0.00

Kajaria Ceramics 0.00 0.00 NA 0 0.00

Somany Ceramics 0.00 0.00 NA 0 0.00

Cash 0.00 0.00 NA 0 0.00

Source: Emkay Research

* Not under coverage: Equal Weight

High Conviction/Strong Over Weight High Conviction/Strong Under Weight

Sector portfolio NAV

Base Latest

1-Apr-19 14-Aug-19 14-Oct-19 13-Nov-19

EAP - Cement & Building Materials 100.0 97.9 94.5 96.8

BSE200 Neutral Weighted Portfolio (ETF) 100.0 95.7 91.4 93.7

*Performance measurement base date 1st April 2019


NAV chart


Please see our model portfolio (Emkay Alpha Portfolio): SMID

Please see our model portfolio (Emkay Alpha Portfolio): Nifty

85

91

97

103

109

115

Apr-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19

NAV

EAP - Cement & Building Materials BSE200 Neutral Weighted Portfolio (ETF)

Analyst: Sanjeev Kumar Singh

Contact Details

[email protected]

+91 22 6612 1255

Sector

Cement & Building materials

Analyst bio

Sanjeev Kumar Singh holds an MBA and

has over 10 years of experience in the

Cement sector. His team currently covers

17 stocks in the Cement and Building

Materials space.

https://web3.emkayglobal.com/ResearchAccess/Upload/SMID_Nov19.pdf

https://web3.emkayglobal.com/ResearchAccess/Upload/Nifty_Nov19.pdf

mailto:[email protected]




Emkay Rating Distribution

Ratings Expected Return within the next 12-18 months.

BUY Over 15%

HOLD Between -5% to 15%

SELL Below -5%

Completed Date: 15 Nov 2019 09:12:53 (SGT) Dissemination Date: 15 Nov 2019 09:13:53 (SGT)

Sources for all charts and tables are Emkay Research unless otherwise specified.

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This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States

DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Emkay Global Financial Services Ltd.

CIN - L67120MH1995PLC084899

7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India

Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com

http://www.emkayglobal.com/




SINGAPORE

DBS Bank Ltd

Contact: Janice Chua

12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982

Tel. 65-6878 8888

Fax: 65 65353 418

e-mail: [email protected]

Company Regn. No. 196800306E

THAILAND

DBS Vickers Securities (Thailand) Co Ltd

Contact: Chanpen Sirithanarattanakul

989 Siam Piwat Tower Building,

9th, 14th-15th Floor

Rama 1 Road, Pathumwan,

Nagkok Thailand 10330

Tel. 66 2 857 7831

Fax: 66 2 658 1269


Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand

INDONESIA

PT DBS Vickers Sekuritas (Indonesia)

Contact: Maynard Priajaya Arif

DBS Bank Tower

Ciputra World 1, 32/F

JI. Prof. Dr. Satrio Kav. 3-5

Jakarta 12940, Indonesia

Tel. 62 21 3003 4900

Fax: 62 21 3003 4943





Sanjeev Kumar Singh, MBA

[email protected]

+91 22 6612 1255

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