Stock market outlook
The current market price of shares of Prince Pipes & Fittings Ltd. is Rs 1,678.65 each. The stock reached a 52-week low of Rs 1,276.60 each on June 17, 2022 and a 52-week high of Rs 1,929.80 each on January 18, 2022. The stock’s ROE is 9 .97%. The dividend yield is 0.60 and the face value is Rs 2.
Returns on investments over the past 5 years
It gave 5.21% in the last week, while in the last 1 and 3 months it gave 6.72% and 16.49% respectively. In terms of returns over the past year, the stock has performed well and returned a positive 14.1%. While in the last 3 years it gave a multibagger return of 136.11% and in the last 5 years it gave 43.1% positive return respectively.
Autonomous performance improved during Exercise 22
Own source revenue increased by 68% year-on-year to INR 209 billion. EBITDA increased by 105% year-on-year to reach INR 32 billion. EBITDA margin increased 2.8pp year-over-year to 15.4%. The improved performance was driven by higher sales volume and better execution, which was partly offset by higher raw material and input costs on 2HFY22, in a volatile external environment. Profit before tax and exceptionals increased by 191% year-on-year to INR 30 billion, driven by improved EBITDA and an increase in other income (up 74% year-on-year to INR 9 billion of INR thanks to a higher dividend from UTCEM). Adjusted PAT (adjusted for cancellation of prior period tax and exceptional items) increased by 150% year-on-year to INR 22 billion.
GRASIM holds the number one position nationally in VSF; positive outlook
VSF volumes were up 30% YoY to 602 KT in FY22, but on a low base. However, the same was only 9% higher than FY20 levels. VSF capacity utilization was 97% in FY22 versus 76% in FY22. ‘EX21. VSF business net revenue/EBITDA increased by 75%/45% YoY to INR 122 billion/INR 17 billion. However, EBITDA margin declined 3pp yoy to 14% due to a sharp increase in raw material and input costs in 2HFY22. VSF demand in India is expected to grow at a CAGR of 10% in CY21-25, driven by increasing textile consumption due to population growth, increasing urbanization and improving living standards .
Chemicals business records strong performance in FY22
Caustic soda volumes increased 16% year-on-year to 1.04mt in FY22. However, it was only 5% higher than FY2020 levels. Caustic soda capacity utilization was 88% versus 78% in FY21. Chemicals business net sales increased by 72% year-on-year to INR 79 billion. EBITDA increased by 160% to reach INR 15 billion. EBITDA margin jumped 6.6pp yoy to 19%, driven by significantly improved fulfillment and improved sales volumes
Capacity expansions and foray into new businesses to drive growth
GRASIM has commissioned its two-phase 600 tpd brownfield expansion in 2HFY22 at Vilayat, Gujarat, bringing its total VSF capacity to 824 ktpa. It aims to increase its VSF capacity by 48 tpd through debottlenecking at three plants. GRASIM increased its caustic soda capacity by 12.5% year-on-year to 1,290 ktpa. It added 142 ktpa capacity at Rehla, Jharkhand (91 ktpa) and Balabharapuram, Andhra Pradesh (51 ktpa) in FY22. The company commissioned a 55 ktpa capacity chloromethane plant (Phase I) in Vilayat, Gujarat, which will help improve the integration of chlorine. Given the strong growth in demand for advanced materials, management is doubling its existing capacity (from 123 ktpa to 246 ktpa) through brownfield expansion at its existing site by FY24. Management focuses on integration across the value chain and diversification into new segments. It has made an incursion into two professions: paints and B2B e-commerce. Both companies will drive growth in its existing business portfolio.
deleveraging its balance sheet; supports the investment needs of new businesses
GRASIM generated positive net cash, partly supported by the proceeds from the disposal of the fertilizer business. The latter was completed on 1 January 22 for a total consideration of INR18.7b. Its net cash balance (autonomous) stood at INR 8.5 billion against a net debt of INR 9.1 billion. Its net debt/autonomous EBITDA ratio was (0.3x) in FY22 compared to 0.6x in FY21. It generated strong cash flow, with a cumulative OCF at INR84b in FY20-22 (v/s INR72b in FY17-19). FCF fell in FY20-22 with cumulative FCF standing at INR20b (v/s INR36b in FY17-19) due to higher capex. Going forward, capital expenditure will remain high, given the expansion of capacity in its existing businesses and the foray into new businesses, which should make FCF negative.
The foray into Paints bodes well; maintain our buy rating
GRASIM, via its participation in UTCEM, is a quasi-game in the Cement space. In our SoTP valuation for GRASIM, UTCEM contributes 65%. “We are positive on the Cement business, with UTCEM being our first choice in the large cap space. GRASIM’s plan to invest INR 100bn in the Paints business signals its intention to enter this space at scale We view its entry into this business as a positive step as it marks its diversification into the high-growth, high-RoCE segment of cyclical and non-strategic business segments (the divestment of its Fertilizers business is complete). 70% between Paints and Birla White dealers. This, coupled with strong brand recall for the Birla Group, will help it succeed in the paints business. We value the stand-alone business at 6.5 x FY24E EV/ EBITDA and other listed subsidiaries at a 35% HoldCo discount to arrive at our revised target price of INR 1,880,” the brokerage said.
The stock was selected in Motilal Oswal’s brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.