Buy Grasim; target of Rs 1900: Motilal Oswal

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Motilal Oswal's research report on Grasim

There are three basic fibers available globally – 1) cotton, 2) polyester (PSF), and 3) viscose staple (VSF). In global fiber production, the share of Cotton, PSF and VSF stood at 24-26%, 65-70% and 6-7%, respectively.  Polyester is a synthetic material, which is durable and easy to maintain. However, it is not biodegradable. VSF and Cotton are used as a blend with PSF. VSF is a factory produce (made from wood pulp), a renewable and 100% biodegradable product. GRASIM is the largest VSF producer in India with a total capacity of 824KTPA. GRASIM’s market share in VSF stood at ~90% in India. The management expects to see a CAGR of 8-10% in VSF demand over the next 10 years. The company is also the largest producer of Viscose filament yarn (VFY) in India. GRASIM’s Raysil is the most popular VFY brand.

Outlook

We have a BUY rating on the stock with a TP of INR1,900, as we value: 1) its holding in subsidiary companies by assigning a discount of 35%; 2) standalone business at 6.5x EV/EBITDA, and 3) investments in the Paints business at 1x of investments (excluding our assumptions of working capital requirements out of announced capex).

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Grasim - 09 -03 - 2023 - moti