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Motilal Oswal Report
Brokerage firm Motilal Oswal has reiterated its Buy rating on Grasim Industries Ltd. with a target price of Rs 3,800, implying a potential upside of 15% from current levels of Rs 3,308, as it value its:
- holdings in listed subsidiary companies by assigning a discount of 35%;
- VSF and chemical business at 7x FY28E EV/Ebitda;
- paint business at three times of FY28E revenue;
- B2B e-commerce at 1x of FY28E revenue, and
- renewable business at 10x FY28E EV/Ebitda.
Grasim's reported performance was above the brokerage's estimates, driven by lower than-estimated losses in the paints and B2B businesses, while chemical outperformance was offset by lower VSF profitability.
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In paints, margins are expected to remain under pressure in the near term due to high-cost inventory and higher advertising expenses; however, Grasim reiterated its targets of achieving Rs 10,000 crore in paints' revenue and breakeven by FY28E.
Motilal Oswal estimates VSF margin to improve marginally in the near term due to higher prices; however, long-term sustainability depends on global demand and input costs.
In chemical business, chlorine integration is likely to increase to ~68% by FY27 end vs ~65% in Q1 FY27, which is estimated to support margin.
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