Buy Grasim Industries; target of Rs 2670: Motilal Oswal

Motilal Oswal's research report on Grasim Industries

Grasim Industries (GRASIM) on 22nd Feb’24 inaugurated its paint plants at three locations - Panipat (Haryana), Cheyyar (Tamil Nadu), and Ludhiana (Punjab). Construction at other three plants at Chamarajanagar (Karnataka), Mahad (Maharashtra) and Kharagpur (West Bengal) is in full swing and they will be commissioned in phases in FY25. GRASIM has the Paint business under the brand name, “Birla Opus”. The company announced its foray into the paint business on 22nd Jan’21 with an initial capital outlay of INR50b. Later in May’22, the management indicated that the capital investments in this business would be INR100b (cumulative capex stood at INR59.96b as of Dec’23) with an aggregate installed capacity of 1.33m kl. This capacity will be further increased by 0.5m kl in the second phase at a much lower cost.

Outlook

We largely retain our EPS estimates for FY24-26. Reiterate BUY with a TP of INR2,670 as we value its: 1) holding in subsidiary companies by assigning a discount of 40%; 2) standalone business at 7x EV/EBITDA, and 3) paint business at 1x of investments.