Buy Grasim; target of Rs 2840: Motilal Oswal

Motilal Oswal's research report on Grasim

Grasim Industries 4QFY24 EBITDA grew 24% YoY to INR5.3b (est. INR5.1b) and OPM surged 1.4pp YoY to 7.8% (est. ~8%). The VSF segment posted an EBITDA/kg of INR21 (est. INR18). The Chemical segment clocked an OPM of 9.4% (est. 14.6%) during the quarter. Higher other income led to 36% beat in PAT (adj. for tax write-back of INR515.4m and INR7.2b write-offs toward the subsidiary, AV Terrace Bay Inc, Canada) to INR2.3b (up 2.4x YoY). Management indicated that the current volume run-rate of VSF is similar to 4QFY24. There has been some improvement in VSF prices; but sustainability needs to be seen. Caustic soda prices have remained range-bound in 1HFY25 due to subdued consumption in China, leading to higher exports globally, including to India. It reiterates its target to onboard 50,000 dealers for Paints in FY25 and plans to establish 150 depots by end-FY25.

Outlook

We largely retain our EPS estimates for FY24-26. Reiterate BUY with a revised TP of INR2,840 (earlier INR2,650) as we value its: 1) holding in subsidiary companies by assigning a discount of 35% (earlier 40%); 2) standalone business at 7x EV/EBITDA, and 3) Paints business at 1.5x of investments.