Buy Grasim; target of Rs 2100: Motilal Oswal

Motilal Oswal's research report on Grasim

Grasim reported an EBITDA of INR6.7b (vs. est. INR5.2b) and OPM of 10.8% (vs. est. 8.2%) in 1QFY24. The beat was driven by VSF segment that posted an EBITDA/kg of INR19.9 (vs. est. INR13.8/kg) and Chemical segment that clocked an OPM of 16.7% (vs. est. 13.5%). Profit was at INR3.6b (vs. est. INR1.6b). Management believes that margins in both the key business segments, VSF and Chemical, have almost bottomed out. Lower input costs aided profitability improvement for the VSF segment and higher sales of VAPs. Further, increased chlorine integration supported sequential margin improvement in the Chemical segment. Commissioning of Lubrizol plant as well as increase in VAP capacities will help improve chlorine integration to 72% from 61% in Jun’23 (60% in FY23).

Outlook

We largely maintain our EBITDA estimates for FY24/FY25. Margin in the VSF segment witnessed a strong recovery and we expect EBITDA/kg to be at INR13/INR18 in FY24/25. Reiterate BUY with a TP of INR2,100 (Exhibit 9).