Grasim Industries Fundamental Analysis and Future Outlook
Grasim Industries was incorporated in 1947 and is a flagship company of the Aditya Birla Group. It is the largest producer of Viscose Staple Fiber (VSF) in India and №1 producer of Caustic and Specialty chemicals. Through its subsidiaries Ultratech Cements and Aditya Birla Capital, it has a wide presence in the cement and financial services sector in India. The other business of the company includes fertilizers, Insulation and Solar power.
- The business model is such that the company is the largest producer of VSF in India with a capacity of 566 Kilo Tonne per annum. They operate some of the well-known brands like Livaeco and Livahome.
- The Vicose filament yarn capacity is of 47 KTPA and has the brand Raysil Fabrics. Their linen and wool manufacturing capacities are also one of the largest in the country.
- In the chemicals business, Grasim has caustic soda capacity of 1147+ KTPA. The company is diversifying its chemical business in chlorine and alkali chemicals. They are also one of the largest epoxy resin manufacturers in the world.
- Under the Cement business, UltraTech is the 3rd largest cement company in the World, excluding China with a consolidated capacity of 105+ million tonnes per annum. It is the largest cement manufacturer in India.
- Under the financial services umbrella, Aditya Birla Capital has a strong presence across a wide range of Protecting, Investing and Financing Solutions. This includes Insurance, Mutual Funds, Home Finance, Corporate Finance, Loan Syndication and Asset Reconstruction.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Grasim Industries Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The effect of COVID-19 lockdown will be different for the different business lines of the company. The textile and chemicals business will see double-digit revenue loss due to factory shutdowns. The cement business will show a temporary decline due to halt in major infrastructure projects, but the demand will pick up once the situation clears. The financial services business may witness a double-digit rise in NPAs. The exact quantum of loss and revenue decline is difficult to measure at this point in time.
- Muted demand due to weak macroeconomic conditions, US-China trade war, and sharp RMB depreciation have impacted global prices for VSF business. Lower-than-expected production of cotton last year has also led to an uptick in global cotton prices.
- Globally, caustic soda prices have been bearish since the last six quarters because of lowering demand in Asia. Any significant improvement in demand is not on the horizon.
- Cement demand may see recovery from FY 2021, due to the increased government spending on infrastructure and construction projects. The cement prices, however, may not witness any significant increase.
- The financial services business raised long-term funds of INR 100+ billion in FY 2020 for some leading companies in India. However, concerns still remain towards the Loan book and NPA for the company.
Overall the company has shown weakening fundamentals due to its inorganic expansion across unrelated businesses. The business outlook also remains unpredictable due to global pandemic and disrupted supply chains.
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