Fw: Investor's Eye: Update - Grasim (VSF price hiked by Rs6 per kg), United Phosphorus (Acquisition presents opportunity to tap Brazilian market)

Investor's Eye [March 08, 2011]  Sharekhan www.sharekhan.com Summary of Contents STOCK UPDATE Grasim Industries  Cluster: Apple Green Recommendation: Hold Price target: Rs2,500 Current market price: Rs2,307 VSF price hiked by Rs6 per kg Grasim Industries has increased the price of viscose staple fibre (VSF) by Rs6 per kg from the beginning of March 2011. This is the second price hike implemented by the company during the ongoing quarter (ie Q4FY2011) so far and with this the realisation of the company now stands at around Rs135 per kg. The present level of realisation is at an historic high due to the strong demand for VSF products in both the domestic and the global market. The demand for VSF is supported by the high price of competing fibres like cotton. Given the improvement in the global demand environment for VSF, the performance of the division continues to shine in terms of volume as well as realisation. Going ahead, we believe the profitability of the division will remain healthy due to the rising price of the competing fibres. However, its cement division is under pressure due to poor cement offtake and unfavorable demand-supply scenario. Further, cost inflation in terms of the rising price of imported coal remains a key concern as the company procurers about 35% of its total requirement through imports. On the valuation front we continue to value the stock using the sum-of-the-parts valuation methodology and maintain our price target at Rs2,500. We also maintain our Hold rating on the stock. At the current market price the stock trades at a price/earnings ratio of 8.8x discounting its FY2012 estimated EPS.  United Phosphorus Cluster: Ugly Duckling Recommendation: Buy Price target: Rs218 Current market price: Rs137 Acquisition presents opportunity to tap Brazilian market Untied Phosphorus Ltd (UPL) has entered into an agreement to acquire a 50% stake in Sipcam Isagro Brazil (SIB) from Isagro. SIB is a 50:50 joint venture (JV) between Sipcam ? Oxon Group and Isagro. The deal will go through by Isagro exiting the JV completely via a stake sale to UPL. Post the deal UPL and Sipcam will hold 50% each in the JV.  We view the acquisition as a positive step in making UPL a truly global agrichemical player. It would enable UPL to enter the high-growth Brazilian market adding US$55 million (as per Isagro?s latest annual report, the JV posted a top line of $109 million for CY2009) to its top line. Further, though the details are not available, looking at UPL?s historical track record and its acquisition target of achieving payback in less than five years, we believe that this acquisition would also have qualified the same criterion. In view of the impending deal closure (expected to close in one month?s time frame), we keep our estimates unchanged and continue to have a bullish view on the stock with a Buy recommendation and a target price of Rs218. At the current market price, the stock trades at 7.5x its FY2012E earnings.     Click here to read report: Investor's Eye   Regards, The Sharekhan Research Team myaccount@sharekhan.com  Manage your newsletter subscriptions