Motilal Oswal's research report on Grasim
Grasim's 4QFY22 result was significantly below our estimates with EBITDA at INR7.5b (v/s estimated INR9.1b) and OPM at 11.8% (v/s estimated 14.2%). VSF segment's OPM stood at 6.7% (down 5pp QoQ) v/s estimated 10.5%. Chemical segment's margin, at 20.1%, was in line with our estimate of 20.5%. Adjusted Profit stood at INR3.5b (v/s estimated INR4.7b). The planned capex in the Paints business has been raised to INR100b from INR50b earlier and the installed capacity will be 1.33m kl. The rise in capex is due to higher capacities and cost inflation. Production is likely to commence from 4QFY24E. The management targets an IRR of 20% from this business. We reduce our FY23/24E EBITDA by ~5% each considering the cost pressures that lead to a 7%/8% cut in our EPS estimates, respectively. We expect the company to benefit from its capex plans; maintain BUY.
We value the standalone business at 6x FY24E EV/EBITDA and other listed subsidiaries at a 40% holding company discount to arrive at our TP of INR1,875 (v/s INR1,950 earlier). Our TP for Grasim includes a 5% premium to its underlying SoTP in order to capture the potential upside from its Paints business. We maintain our BUY rating on the stock.
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