Recommendation: Buy
CMP = Rs 2,736
Price target: Rs 3,853
Result highlights:
- Grasim Industries' (Grasim) Q3FY2008 net sales increased by 15.4% year on year (yoy) to Rs 2,630 crore, mainly on the back of higher realisations from Viscose Staple Fibre (VSF) and sponge iron businesses.
- The operating profit margin (OPM) improved by 340 basis points to 32.6%, mainly on account of higher realisations from VSF and sponge iron businesses. Consequently the operating profit was up 29% yoy to Rs 856.3 crore.
- The reported profit after tax (PAT) was up by a robust 34.6% yoy to Rs 553.79 crore because of a healthy growth reported across all the segments namely cement, VSF, sponge iron and caustic soda.
- The company's expansion plans are on track for both cement and VSF businesses. The company is adding about 9 million tonne per annum (MTPA) of cement capacity by Q2FY2009 and about 95,000 tonne of VSF capacity, of which 64,000 tonne is expected to come by March 2008. The company has also announced a Rs 840-crore
- The management has hinted at a possible buyback, which will be a positive trigger for the stock.
- At the current market price of Rs 2,736 the stock is trading at 9.4x its estimated FY2008 earnings per share (EPS) and 10.8x its estimated FY2009 EPS.
- I maintain Buy recommendation on the stock with a revised price target of Rs 3,853.
