Grasim Q4 Results Review - Ebitda Inline; VSF Profitability Improves, Chemical Was Weak: Motilal Oswal

Motilal Oswal Report

Grasim Industries Ltd.'s Q4 FY24 Ebitda grew 24% YoY to Rs 5.3 billion (estimate: Rs 5.1 billion) and operating profit margin surged 1.4% YoY to 7.8% (estimate: ~8%). The VSF segment posted an Ebitda/kg of Rs 21 (estimate: Rs 18). The Chemical segment clocked an OPM of 9.4% (estimate: 14.6%) during the quarter.

Higher other income led to 36% beat in PAT (adjusted for tax write-back of Rs 515.4 million and Rs 7.2 billion write-offs toward the subsidiary, AV Terrace Bay Inc, Canada) to Rs 2.3 billion (up 2.4x YoY).

Management indicated that the current volume run-rate of VSF is similar to Q4 FY24. There has been some improvement in VSF prices; but sustainability needs to be seen. Caustic soda prices have remained range-bound in H1 FY25 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.

We largely retain our EPS estimates for FY25-26. We reiterate Buy with a revised target price of Rs 2,840 (earlier Rs 2,650) as we value its:

1. holding in subsidiary companies by assigning a discount of 35% (earlier 40%);

2. standalone business at seven times EV/Ebitda, and

3. Paints business at 1.5 times of investments.

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