CMP Rs 2423
Bank of America recommends ‘Sell’ rating on Grasim Industries. VSF (viscose staple fibre) prices in China have fallen 10-15% over the past few days. In contrast, Grasim hiked domestic VSF prices by Rs 8/kg (+5%) at the start of April ’11. .BoA’s FY estimates already assume lower VSF prices and remain unchanged. Their long-term stock rating stays at ‘Neutral’ reflection relative preference for Grasim over pure cement plays due to steep valuation discount and fewer risks to VSF outlook. Grasim reportedly hiked prices of viscose staple fiber by Rs 8/kg (+5%) in April’11. The gap between local and international VSF prices has therefore narrowed to about 7% versus 15-20 earlier. This creates a possibility of Grasim having to roll back some of the recent hikes. Longer – term, however, we do not see significant drop in VSF prices unless cotton prices drop sharply. Currently, VSF is priced on par with cotton compared with about 40% premium historically.