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Sequential improvement; outlook positive

Grasim Industries Ltd, a flagship company of Aditya Birla Group, is a diversified company with interests in cement, textiles, retail and chemicals.

* Consolidated revenue increased 16.1% YoY (+16.8% QoQ) to Rs. 33,462cr in Q4FY23 on account of robust revenue growth in financial services and cement businesses in Q4FY23.

* The company’s EBITDA grew 4.9% YoY to Rs. 4,873cr in Q4FY23, led by good performance from Ultratech and Aditya Birla Capital, while EBITDA margin contracted 150bps to 14.6%.

* Pick-up in demand amid improved economic outlook, coupled with the strategic focus on expanding and exploring growth opportunities in its core businesses augurs well for the company and its shareholders. With a positive outlook, we upgrade our rating on the stock to BUY with a revised TP of Rs. 1,933 based on SOTP valuation

Demand momentum drives revenue growth

In Q4FY23, Grasim’s consolidated revenue increased 16.1% YoY (+16.8% QoQ) to Rs. 33,462cr driven by robust revenue growth in financial services and cement businesses. Viscose business witnessed muted degrowth of 0.1% YoY, while it rose 18.3% QoQ supported by demand revival and growth of VSF sales volume, which rose 25% QoQ to 192KT. Revenue from key subsidiaries UltraTech and Aditya Birla Capital grew 20% YoY and 23% YoY, respectively. Although chemical business revenue decreased 3.6% YoY to Rs. 2,397cr due to slower growth in Chlor-Alkali market in Q4FY23, it grew 32.1% YoY during the year supported by stable demand and high realisations. Textile revenue rose 8% YoY to Rs. 520cr driven by robust demand from linen and wool businesses.

Margins shrink on high input prices

EBITDA during the quarter increased 4.9% YoY to Rs. 4,873cr, mainly led by a good performance from Ultratech and Aditya Birla Capital. EBITDA margin contracted 150bps YoY to 14.6%, largely due to higher input costs. Viscose business EBITDA declined 42.6% YoY, while there has been a sharp rise of 128.6% QoQ on account of higher volumes, a decrease in input costs and better realisations for VFY. Reported PAT declined 50.7% YoY to Rs. 1,369cr, whereas PAT margin fell to 4.1% from 9.6% in Q4FY22

Key concall highlights

* In FY23, VSF recorded the highest ever sales volume of 711KT, along with capacity utilisation of >90% driven by a strong demand recovery.

* Plant construction is now in progress in all the six sites and all required approvals are in place. Capex up to FY23 is Rs. 2,592cr (~26% of the planned outlay for paints business)

* Grasim’s achieved the highest standalone revenue of Rs. 26,840cr in FY23 at a 19% CAGR.

Valuation

With increased capacity utilisation, a recovery in caustic soda prices, an improved demand outlook, constant process and product innovation, stringent cost-cutting measures and capacity expansion in the cement business, the outlook remains strong. Hence, we upgrade our rating on the stock to BUY and roll forward our valuation with a revised target price of Rs. 1,933 based on SOTP valuation.

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