Grasim Industries Equity Research

Date of Research – 27 January 2016

Price – Rs. 3467.10

About the Company

Founded in 1947, Grasim Industries Limited, (“Grasim” or the “Company”) is the flagship company of the Aditya Birla Group. The Company started as a textiles manufacturer in 1948 and today Grasim’s businesses comprise viscose staple fibre (VSF), cement, chemicals and textiles. Its core businesses are VSF and cement, which contribute to over 90 % of its revenues and operating profits. Grasim through its subsidiary UltraTech Cement Limited (“UltraTech”) has an installed capacity to produce 52 million tonne of cement per annum.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations27,904.3229,324.0432,847.3436,636.88 40,247.17 
Expenses21,980.7324,409.6127,702.8829,947.75 32,862.04  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)5,923.594,914.435,144.466,689.13 7,385.13  
Depreciation1,252.061,457.481,563.221,910.96 1,807.59  
Finance Costs324.14447.32667.39751.34 702.40  
Other income619.53576.59538.96336.36 947.78  
Exceptional items(204.43)9.4627.85 – 
PBT5,171.353,586.223,443.354,335.34 5,822.92  
Tax1,467.21734.791,015.921,211.13 1,706.71  
Extraordinary items– – 
PAT (before Minority Interest and share of Associates)3,704.142,851.432,427.433,124.21 4,116.21  
Profit/ (loss) attributable to Minority Interest1,073.40882.76837.86910.52 
Share of profit / (loss) of Associates(73.65)(102.87)(154.23)(145.46) (129.40) 
Consolidated Profit / (Loss) for the year2,704.392,071.541,743.802,359.15 4,245.61  

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Operating Profit Margin Ratio21.2316.7615.6618.26 18.35 
Net Profit Margin Ratio13.279.727.398.53 10.23 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital91.7291.7991.8491.8793.36 
Share Capital (Other than Equity)41.9242.6644.5559.1757.98 
Reserves & Surplus16,935.0119,522.0921,478.0122,988.7125,679.34 
Employee Stock Option Outstanding– 
Net worth (shareholders funds)17,068.6519,656.5421,614.4023,139.7525,830.68 
Minority Interest5,233.386,220.986,935.847,681.798,484.47 
Long term borrowings5,700.876,653.077,611.996,384.325,700.70 
Current liabilities6,362.529,027.598,558.1013,122.0715,055.38 
Other long term liabilities and provisions189.97204.80211.33296.58325.59 
Deferred Tax Liabilities1,979.042,310.622,814.943,429.064,238.45 
Total Liabilities36,534.4344,073.6047,746.6054,053.5759,635.27 


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets17,513.8223,636.0025,968.6331,299.7134,005.71 
Noncurrent Investments2,853.743,164.922,673.283,838.974,585.89 
Current assets11,603.9212,661.9213,973.7513,323.1815,017.65 
Long term advances and other noncurrent assets2,066.541,601.071,842.452,289.552,639.55 
Goodwill on consolidation (net)2,496.413,009.693,276.823,283.403,373.60 
Total assets36,534.4344,073.6047,746.6054,053.5759,635.27 

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROE / RONW15.5113.769.587.5412.09 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)27,904.3229,324.0432,847.3436,636.88 40,247.17 
Growth (%)10.54 %5.09 %12.02 %11.54 % 9.85 %
PAT (Rs. Cr.)3,704.142,851.432,427.433,124.214,116.21   
Growth (%)4.89 %(23.02 %)(14.87 %)28.70 %31.75 %  
Earnings Per Share – Basic (Rs. )58.9545.1237.9750.5567.85  
Earning Per Share – Diluted (Rs. )58.9045.1037.9350.5067.77  
Price to Earnings9.5511.6418.4715.2116.47  

Dividend History

The Company has maintained an average dividend yield of 1.20 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Grasim’s average current ratio over the last 5 financial years has been 1.68 times which indicates that that the Company is comfortably placed to pay for its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Grasim’s average long term debt to equity ratio over the last 5 financial years has been 0.24 times which indicates that the Company operates with a low level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Grasim’s average interest coverage ratio over the last 5 financial years has been 16.21 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Grasim reported a promoter holding of 31.27 %.

At the same time, institutional holding in the Company stood at 40.13 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.