Grasim Q3 Results Review - Inline Performance Of Core Segments; Eyes On Paints Rollout: Motilal Oswal

Motilal Oswal Report

Grasim Industries Ltd.’s Q3 FY24 Ebitda was ~10% below our estimates, primarily due to higher losses (up Rs 470 million QoQ to Rs 900 million) in the new businesses (Birla Pivot and Paints) and the insulator segment. Ebitda for the VSF/chemical segments was 5%/4% above our estimates.

The VSF segment posted an Ebitda/kg of Rs 18.7 (estimate Rs 17.6), while the Chemical segment clocked an operating profit margin of 13.2% (estimate 12.3%) during the quarter. The lower tax rate resulted in a 47% YoY growth in adjusted profit to Rs 2.4 billion (versus estimate of Rs 2.0 billion).

Grasim indicated that the margin in the VSF segment is stable. Even though the caustic soda price is declining, global prices are likely to bottom out soon, and then prices should remain stable or rise. The losses in the paints and B2B businesses were higher due to the rise in employee strength.

We largely retain our earnings per share estimates for FY24-26. Reiterate 'Buy' with a target price of Rs 2,670 as we value its:

1. holding in subsidiary companies by assigning a discount of 40%;

2. standalone business at seven times enterprise value/Ebitda, and

3. Paints business at one time of investments.

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