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One of our most favourite darkhorsestock idea | Largecap company

This is one of our favourite company and we had been waiting since quite a long time to suggest this company to all the followers of darkhorsestocks as we seen immense potential in this company. The stock currently is down about 23% from 52 week high , it may fall a bit more from here but overall this company is worth exploring.

Grasim Industries Ltd

Current Market Price on the date of publishing this report-:  1475 Rs

This is one of our favourite company and we had been waiting since quite a long time to suggest this company to all the followers of darkhorsestocks as we seen immense potential in this company. The stock currently is down about 23% from 52 week high , it can fall a bit more from here but overall this company is worth exploring.

Grasim Industries Limited is the flagship company of the Aditya Birla group, it ranks amongst India’s largest private sector companies. GIL’s key operations are viscose staple fibre (VSF), caustic soda, specialty chemicals, and rayon-grade wood pulp (RGWP), all of which are produced at several sites. It also has other enterprises like fertilizer, textiles, and so on. Apart from that, Grasim is one of the key firms of the Aditya Birla group, with substantial stakes in companies like Aditya Birla Capital, Ultratech Cement, and Aditya Birla Fashion.

Grasim’s Holding In Other group Companies

Company% Held Market Value (Crs.)
Ultratech Cement57.27%102000
Aditya Birla Fashion10.4%2600
Aditya Birla Capital54.18%13098
Hindalco3.92%3417
Vodafone10.33%2770
Total123885

Market Cap of Grasim – 97,105 crores

UltraTech Cement – This is one of the largest cement manufacturing companies in India. The total installed capacity of the company is around ~117 MnTPA of cement which is ~24% of total installed cement capacity in India.

Aditya Birla Capital-: This company has various financial business under its portfolio such as Insurance, Loans, Housing Finance , Nbfc etc. Apart from that it also holds 50% stake in Aditya Birla Sunlife AMC (Mutual Fund asset management company) of Aditya Birla group. (This company has been suggested on standalone basis as DARKHORSESTOCK IDEA earlier)

Aditya Birla Fashion-: This company has several brands such as Louis Philippe, Van Heusen, Allen Solly and Peter England as well as Its International Brands such as Simon Carter, Hackett London, Ted Baker, Ralph Lauren, American Eagle, and Fred Perry etc under its portfolio.

About

Incorporated in 1947, just after Independence, the company started production of fabrics at Gwalior with imported man-made rayon. In the year 1954, Grasim commenced VSF production at Nagda in Madhya Pradesh. The firm is India’s pioneer in viscose staple fibre (VSF), a man-made, biodegradable fiber with cotton-like properties. Nagda in Madhya Pradesh, Kharach in Gujarat, and Harihar in Karnataka are the company’s VSF factories. With a 9 percent worldwide share in viscose staple fibre (VSF), the company is a global leader.

In the year 1972, the company commenced production of rayon grade caustic soda for VSF production at Nagada. 

In the year 1977, the company started production at their third rayon plant at Harihar in Karnataka. In the year 1985, Vikram Cement, the company’s first cement plant went on stream at Jawad in Madhya Pradesh. In the year 1987, they commenced second production line of Vikram Cement. In the year 1991, they added the third production line of Vikram Cement.

Grasim is the largest Caustic Soda producer in India with a capacity of 840 KTPA which company plans to increase to 1500 KTPA in the coming period.

UltraTech Cement Limited, a Grasim subsidiary with a capacity of 93 MTPA in India, is a significant worldwide cement maker (includes 4 MTPA overseas). Apart from ongoing modernization expenditure at different plants, the VSF and Chemical businesses have a total capex plan of Rs 7800 crore (at standalone level) that is now being implemented. Internal accruals will be used to fund the majority of this capital investment, which will take place between FY20 and FY22.

The chemical business was set up given it’s a critical input for manufacturing VSF, and to achieve backward integration. 

Grasim Industries Ltd, the Aditya Birla Group’s flagship firm, is one of India’s largest private sector corporations. It is a global leader in viscose staple fibre (VSF), the world’s largest chemical company (Chlor-Alkalis), India’s largest cement maker, and a diversified financial services company (NBFC, Asset Management, and Life Insurance).

Business Segments/ Products

The company has four segments: Fibre and Pulp, Chemicals, Cement and Textiles. 

Fibre and Pulp segment includes Viscose Staple Fibre and Rayon Grade Pulp. 

Chemicals include Caustic Soda and Allied Chemicals. 

In cement, Grasim through their subsidiary UltraTech Cement Ltd (UltraTech), has a capacity of 93 million tonnes per annum (MTPA) of grey cement. The cement segment includes Grey cement, Ready-mix concrete and White cement. 

Textile segment includes yarn. Their textile subsidiary is Grasim Bhiwani Textiles Ltd. The company’s other subsidiaries include Sun God Trading and Investments Ltd, Harish Cement Ltd and Dakshin Cements Ltd.

Viscose Staple Fibre

Grasim is a pioneer in VSF, a man-made, biodegradable fibre that is quickly gaining traction as a viable alternative to cotton in India. VSF is a flexible fibre that is utilized in a variety of applications including garments, home textiles, dress materials, knitwear, and non-wovens. Our Birla Cellulose fibers can be utilized in their natural state or combined with all natural and synthetic fibers for a more luxurious feel.

Birla Cellulose is a global leader in Viscose Staple Fibre (VSF) with a significant market share. Birla ModalTM, Birla ExcelTM, Birla ViscoseTM, and Birla SpunshadesTM are among the products in our portfolio. Birla Cellulose fibres are made from natural materials, are moisture absorbent, soft, and biodegradable. Viscose Staple Fibre from Birla Cellulose is widely utilized in apparels, household textiles, and nonwoven applications because it is extremely flexible and easy to blend.

Brand Under this Portfolio -: Liva (https://www.livafluidfashion.com/)

Liva is made up of natural-based materials (pure or mixed) that help you feel more fluid within.

Viscose Filament Yarn

Grasim Industries Limited is India’s largest and third-largest viscose filament yarn (VFY) maker. With exports to 45 countries, the firm is also India’s top VFY exporter.

Raysil® (previously RayOne) is a 100 percent natural viscose filament yarn with a product portfolio ranging from 20 deniers to 1200 deniers in both bright and dark coloured viscose filament yarns. Its adaptability, great drape, fluidity, and shine make it a favorite option for georgettes, crepes, and chiffons, among other textiles.

For more details visit – http://raysil.co.in/

Chemicals

The chemicals division of Grasim was founded in 1972 to produce caustic soda for the company’s VSF section. It is now one of India’s leading manufacturers of caustic soda and a market leader in the chlor-alkali industry. Grasim’s chemicals division has established a significant presence in the sector, offering a diverse variety of products ranging from chlorine derivatives to epoxy.

The entire caustic soda capacity of Grasim is now 1,264 KTPA. By FY2024, the business expects to increase caustic soda capacity to 1,530 KTPA from 1,264 KTPA through brownfield development.

The company employs low-cost membrane cell technology and is virtually self-sufficient in terms of energy. The company has a range of chlorine derivatives such as Stable Bleaching Powder (SBP), Polyaluminium Chloride (PAC), Chlorosulphonic Acid (CSA), Chlorinated Paraffin Wax (CPW), Calcium Chloride (CaCl), Aluminium Chloride (AlCl), and Chloromethane for effective chlorine use (CMS).

The company’s epoxy products include everything from basic liquid epoxy resins to value-added formulated resins, reactive diluents, and hardeners. A 123 KTPA epoxy facility is housed at the Vilayat industrial complex. By FY2024, we want to quadruple the epoxy capacity to 246 KTPA through expansion.

Textiles

In 1949, Grasim entered the textile sector with the establishment of Jaya Shree Textiles in Rishra, West Bengal. Jaya Shree Textiles is now one of India’s largest linen and wool producers. Linen spinning, linen fabric, wool combing, and worsted spinning are its four strategic business units (SBUs).

To create 100 percent pure linen, the finest flax is imported from France, Belgium, and other regions of Europe. The fibres are spun, woven, and dyed using cutting-edge European technology, making it one-of-a-kind and impossible to imitate. Jaya Shree Textiles can also produce over 3000 distinct weaves, textures, and mixes thanks to its advanced technology. With its brand ‘Linen Club,’ the firm has revolutionized the Indian textile sector by popularizing linen across a broad client base.

LINEN CLUB -: https://www.linenclub.com/

Linen Club is India’s largest linen fabric company, having over 70 years of experience in linen manufacture and design. Linen Club was the first linen retailer in India, and it currently sells through both exclusive and multi-brand locations. It is the world’s largest linen retail chain.

Linen Club Studio, a ready-to-wear company, has joined the Linen Club family. Linen Club Studio is a new product that perfectly marries traditional aesthetics and current high craftsmanship with unrivalled comfort. Cavallo, a mixed linen collection by Linen Club, is aimed at a younger audience looking to dress up at a low cost. Cavallo by Linen Club is a sustainable up cycled product that comes in textiles and garments. It’s available both on and off the internet.

Insulators

Aditya Birla Insulators is India’s largest electrical insulator manufacturer and is among the top four insulator makers worldwide. It manufactures the biggest range of insulators in India, including those for transmission lines and substations with voltages up to 1200 kV, as well as equipment and railroads. It has 56,400 TPA of installed manufacturing capacity and specializes in ceramic and composite insulators. In 2019, Aditya Birla Power Composites Limited (ABPCL) and Maschinenfabrik Reinhausen GmbH of Germany commissioned the Composite Hallow Core Insulators (CHCI) factory in Halol, which is a joint venture between the two companies.

Grasim’s foray into Paint Industry with 5000 crore capex

The board of Grasim Industries authorized a Rs 5,000 crore capital expenditure (capex) plan for its paints division over three years in 2021. As of February 2022, the firm has received environmental clearance for two of its locations for the purpose of establishing industrial units for the production of paints. The CAPEX in those two sites will get accelerated. The CAPEX spent amount is that Rs. 505 crore till now on paints, which was mainly towards acquisition of land parcels. 

Distinctive advantage

The introduction of Grasim into the paint sector can be considered as a good step since it indicates the company’s diversification into a high-growth, highRoCE segment from its cyclical and non-core (the fertilizer business has been divested) business areas. Though several firms have struggled to acquire substantial size in this market in the past, it is felt that Grasim has a good chance of succeeding in this business. This is due to the fact that the Birla White/Putty distribution network, which includes around 54000+ dealers, will have a 70% overlap between Paints and Birla White dealers, and the Birla group has a high brand recall.

Grasim is targeting a 20% IRR from this business and aspires to be No. 2 player in the paints industry.

Any details about various initiative take by the company on reducing carbon footprint have not been mentioned here in this report. For users who are willing to explore company from ESG point of view are requested to refer company financials since while preparing this report we did find evidence as well as managements comments about significant steps take by the company in this direction that is on various ESG items/carbon footprint items.

Capex 

The total CAPEX amount budgeted for the entire year was Rs. 2,604 crore, and that was excluding paints. For nine months FY22, the actual amounts spent stood at Rs. 1,476 crore and as of Q3FY22 company was confident of closing the year with achieving targeted capex.

Viscose expansion-: The company expanded VSF capacity at Vilayat by 600TPD in two phases, 300TPD commissioned in November 2021 and 300TPD in Feb 2022. The overall capacity has increased by 37% from 591KTPA to 810KTPA.

In the Chlor-alkali business, BB Puram (phase-1) plant of 26KTPA was successfully commissioned in Dec-21, and the balance (47KTPA) is expected to be commissioned in Q1FY23. The Rehla plant of 91KTPA and the Chloromethane plant of 55KTPA at Vilayat (Gujarat) was also commissioned in Q3FY22.

Financials

Standalone quarterly numbers for Grasim Industries for Q3FY22

  • Net Sales stood at Rs 5,784.74 crore in December 2021 up 57.55% from Rs. 3,671.79 crore in December 2020.
  • Quarterly Net Profit stood at Rs. 522.47 crore in December 2021 up 45.38% from Rs. 359.37 crore in December 2020.
  • EBITDA stood at Rs. 962.68 crore in December 2021 up 35.7% from Rs. 709.40 crore in December 2020.
  • Grasim EPS has increased to Rs. 7.96 in December 2021 from Rs. 5.47 in December 2020.
  • Company completed disinvestment of fertilizer business on 1st of Jan. With the sale, company has turned net cash positive on standalone basis again after a gap of 12 quarters.
  • The caustic soda capacity utilization touched multi-year high of 93% in Q3, up 7% sequentially. 
  • In Q3, the firm saw a surge in textile demand. Domestic sales contributed 91 percent of total sales in Q3, up from 84 percent in Q2. The value added share products grew from 27% in Q2 to 29% in Q3.
  • VSF sales and EBITDA were Rs. 3335 crore and Rs. 401 crore, respectively, while VFY sales and EBITDA were Rs. 574 crore and Rs. 80 crore, respectively.
  • The international caustic price continues to rise in the fourth quarter in the chemical industry. It was running at 93 percent capacity, which was 7% higher than the previous month. Due to cost pressures and decreasing demand, VAP goods suffered. The chemicals division brought in Rs. 2338 crore in sales and Rs. 528 crore in EBITDA.
  • Consolidated sales increased by 16 percent year on year to Rs. 24402 crore, with net profit increasing by 26 percent to Rs. 1746 crore.

Financials about Ultratech Cement and Aditya Birla Capital are not covered here.

Going forward , Future outlook and Sectorial outlook

Grasim aims to be the second largest paints player in India

The developments in the cotton business should help Grasim Industries (Grasim). Until FY25E, VSF demand should outperform cotton. Furthermore, the United States’ prohibition on cotton imports from the Xinjaing region may lead to a shift to alternative goods.

The Chemical segment’s focus on backward integration may boost chlorine usage, as Grasim expects to raise chlorine consumption in value added products (VAPs) to 40% by FY25E from 28% in FY21. The chemical segment’s OPM should increase to 19% in FY23E from 13% in FY21.

Furthermore, capacity additions of 37 percent in the VSF segment and 33 percent in the Caustic soda segment are expected to boost volume and profitability in FY22-24E. As a result, based on our best estimates, this might translate into a 15% volumetric cagr in the next 2-3 years.

Conclusion

The Aditya Birla Group’s flagship firm, Grasim Industries Limited, is among India’s top publicly traded corporations. Grasim is commemorating 75 years of magnificent existence. It began as a textile factory in India in 1947 when it was incorporated. It has grown into a major diversified business with leadership positions in a variety of industries.

It is the world’s largest producer of viscose staple fibre and filament yarn, as well as India’s largest manufacturer of chlor-alkali, advanced materials, linen yarn, and fabrics. It is also India’s largest cement manufacturer and a significant diversified financial services business through its subsidiaries UltraTech Cement and Aditya Birla Capital. Its recent announcement to foray into the paint industry with 5000 crores of investment and to be amongst the top 3 players in the paint industry is a bold announcement made by the company. Thus based on all we have read about , we strongly feel that Grasim Industries is worth exploring.

Kumar Mangalam Birla the chairman of the Aditya Birla Group is according to us one of the most educated industrialist in India. Getting a fancy degree or admission to prestigious universities given that you have such huge networth and a business empire is definitely easy. But what makes Kumar Mangalam Birla stand out from the rest of the business man in India is that he is a chartered accountant from Institute of Chartered Accountants of India (ICAI), something which can be achieved only by sheer hard work and exceptional intelligence. Thus, that is why we among all the Industrialist / Businessman in India we have utmost respect for him


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