Grasim : Ignored Value

Ticker : 500300/ Grasim

ISIN : INE047A01013

Grasim Limited. The company which is in news nowadays due to Merger with AB Nuvo. The share price may look like high. But the valuation is telling the different story. I was trying to study Cement Sector but for some reason it was not possible for me to concentrate on the company. Now due to the Merger, it is coming in limelight.

Here in the Blogpost, I will try to write about the Company and Expected Effect of Merger.

Industry analysis : Textile

Textile is one of the oldest business in India. Today it ranks second in manufacturing aftet china. It is one largest contributor in export in India, accounting for around 11% export and earning US$ 41.4 . Even before the British rule, Indian clothing and Indian cotton was Famous. After industrial revolution big changes takes place. Handloom and the clothing on it were replaced by the industrial clothing. Textile sector was one beneficiary of revolution in Chemistry and development of related things like Petrochemicals. Today is it important part in consumption. As the income increase the expenditure for clothing in increasing and That is helpful for many companies. Why think domestically? Indian clothing is famous all around the world.

Cement sector analysis : 

Infrastructure is core for any Develop economy. But it is more important for developing economy like India. Due to many reasons, Infrastructure development was ignore. Now when the need of infrastructure is realised, the Govt is doing its job. Recently Govt passed many road projects. Nearly 2 trillion RS from Uttar Pradesh, 7.44 Billion Rs in Tamil nadu. Not only that there are many more all around the nation. It is part of Govt’s 12th 5year plan in which it is planning to invest US$ 1 trillion for Infrastructure. There were many developments which are Supporting the Sector.

Plus Many of the Govt companies holding big land Bank And also need money. It is expected that Govt will permit them to sell. The big reason is Govt is trying hard to give home to everyone till 2022.

Biggest booster for the cement industry will be Smart Cities development project under which the Govt planning to develop 98 Cities around the nation including their Infrastructure.

And all of this, Cement is important material as it is beneficiary of all the development in Infrastructure and real estate.

India is the second largest producer of Cement in world, since the deregulation in 1982 the sector was growing through big change. 

Many big MNC companies are setting up the plant in India and the domestic companies also growing. Like Heidelberg, Holcim-laffarge, ULTRATECH etc. It is expected that demand for Cement will be around 500 million tonnes in 2025. In FY 17 it is expected to grow with 9.8%

Grasim is operating in the Sector via subsidiary UltraTech. Forth largest Cement Manufacturing company after the acquisition of JP Group Cement business and Recent Greenfield Expansion.

Company overview :

Grasim Limited, was Textile company. But now the company is diversified as there are many businesses under the company. 90 of the revenue come from Cement and Textile. The company is also in the business of Chemical as backword integration for Textile. The company is also holding Stake in UltraTech Cement, Where the value of the stake is more than Market capitalization of whole company.

Recent Expected Merger with AB Nuvo will make it holding company of Aditya Birla Group. As it’s impossible for any holding company to Trade its holding, market hardly give its value to the company.

SHAREHOLDING PATTERN : 

Finance and Ratio : 

 2010-112011-122012-132013-142014-152015-16
Revenue21550.2325244.8927909.3429323.3432832.3636636.88
Net Profit2279.012647.462704.392071.541743.82359.15
Basic EPS128.86128.33133.6297.5857.69102.13
Diluted EPS128.77128.22133.5197.5457.63102.04
Asset Turnover46.645.0340.2640.3744.0752.87
Net Profit Margin25.4623.6823.3215.988.3610.61
Dividend Payout15.5117.5316.8421.5231.8422.03
Dividend / Share2022.5022.50211822.50
ROA11.8010.669.396.453.685.61
ROE14.5212.9312.118.274.737.70
ROCE13.2811.8210.657.254.156.77

Future prospects

From last some Years, ROE, ROCE, ROA are reducing but company is giving more percentage of Profit as dividend so it’s clear it is Holding company now so invest only if you are investing for dividend. If you really want to invest in Cement then invest in UltraTech or If you want to invest there is company name Arvind limited.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter