Karvy Stock Broking has come out with a research report on Grasim Industries. The research firm has reiterated underperformer rating on the stock with a target price of Rs 2,092 based on SOTP valuation, in its report dated November 13, 2009.

"For quarter ending September 2009, Grasim Industries' result was better than our expectation on account of robust performance from cement and VSF (Viscose Staple Fiber) segment. Net sales grew by 5.2% to Rs 46.8 billion ahead of our estimate of Rs 44 billion on account of higher realization for cement and VSF. EBIDTA has increased by 61.2% yoy to Rs. 14.84 billion against our estimate of Rs 13.48 billion and EBIDTA margin has improved by 1100bps to 31.7% in Q2FY10 against our estimate of 30.6% driven by cost reduction and higher realization. Depreciation of Rs 2.42 billion and interest cost of Rs 831 million was broadly in line with our expectation. Adjusted PAT has shown a growth of 60.7% to Rs 7.80 billion in Q2FY10 versus our estimate of Rs 6 billion on the back of higher EBIDTA margin", says Karvy Stock Broking.

The report also says, "The company is currently trading at PER multiple of 9.9x and EV/EBIDTA multiple of 4.7x on FY11E earning. The company has proposed to restructure its cement business by transferring its cement business to Samruddhi Cement Ltd. (SCL), and eventually merging it with Ultratech Cement Ltd (UTCL). Post restructuring Grasim's significant value would be contributed by subsidiaries and investments. Hence we had downgraded the stock in the anticipation of higher discount for holding company. Since then the stock has corrected by more than 15%. However still looking at bleak outlook for cement; we reiterate our underperformer rating with target price of Rs 2,092 based on our SOTP valuation."

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