Grasim - Balancing Growth, Sustainability: Motilal Oswal

Motilal Oswal Report

In FY24, Grasim Industries Ltd.’s core operating businesses (viscose staple fibre and chemical) were under pressure due to lower realizations. We estimate a gradual improvement in VSF margin with an improvement in VSF prices. Moreover, we anticipate improvement in the chemical segment margin led by higher caustic soda realization and improved margin of chlorine derivatives.

In the paints business, the company has successfully launched its initial product campaigning, and its ‘Make Life Beautiful’ advertisement received a positive response from the customers. Furthermore, its B2B e-commerce business recorded a quarterly revenue run-rate of Rs 5.5 billion with gradual scale-up across categories, geographies, and new customers. As the company’s high-growth businesses commence operations, it would be crucial to monitor revenue traction in both businesses

We reiterate our Buy rating with a target price of Rs 3,160 as we value its:

1. holding in subsidiary companies by assigning a discount of 35%;

2. standalone business at seven times Sep-26E enterprise value/Ebitda, and

3. paints business at 1.5 times of investments.

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