>Grasim Industries (CITI)

Sell: 3Q FY09 Margin Pressures to Continue

* 3Q FY09 PAT falls 40% yoy — PAT came in at Rs3.3bn, slightly better than
our estimate of Rs3.1bn. EBITDA fell 38% yoy to Rs5.4bn and margins fell to
20% vs. 33% last year and 22% in the previous quarter. EBITDA margins for all
divisions fell yoy, a substantial decline in case of VSF margins.

* Cement (63% of Sales, 70% of EBITDA) — The cement division margin fell to
24% in 3QFY09 from 31% in 3QFY08, impacted by higher costs. Grey cement
volumes grew 8% yoy to 4.05m tonnes and realizations rose 6% yoy to Rs3,399/t
(-1.4% qoq). We expect continued pressure on margins, with new domestic
supply, to result in price weakness. Grasim's 4.4mtpa Shambhupura plant
should be operational by 4QFY09 and the 4.5mtpa Kotputli plant by 1QFY10.

* VSF and Chemicals (25% of Sales, 17% of EBITDA) — VSF's margins fell
sharply to 11%, from 42% in 3QFY08, on lower realizations and volumes,
higher sulphur and pulp prices, and rupee depreciation. Volumes fell 22% yoy
in 3QFY09, on global demand weakness, and realizations fell 11% yoy to
Rs96,611/t. VSF prices have been cut by ~7% and margins are expected to
remain under pressure in the medium term.

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