Add Grasim Industries Ltd For Target Rs. 3,500 by Choice Institutional Equities Ltd
Rating revised to ADD; TP maintained at INR 3,500
We revise our rating on Grasim Industries (GRASIM), from BUY to ADD, following a ~12% appreciation in the stock since our Q4FY26 recommendation, while retaining our target price of INR 3,500/share. We remain constructive on the company, supported by: (1) Paints business gaining traction and targeting INR 100 Bn revenue run-rate by FY28E, with market-share gains outpacing the industry; (2) 110 KTPA Lyocell expansion, with Phase-1 capacity of 55 KTPA expected to be commission in near-term; (3) Birla Pivot’s ambition to address a >USD 200 Bn market opportunity over the next 3–4 years; and (4) Higher chlorine integration, targeted at ~68% by FY27-end, which projected to support better chlorine utilisation and downstream value-addition
Valuation framework is as follows:
* Standalone businesses: We value the businesses outside Paints using an EV/EBITDA methodology. We assign 7x FY28E EBITDA to Cellulosic Fibre, Chemicals and Other Clusters comprising Textiles, Insulators and Renewables, while B2B E-Commerce is valued at 8x FY28E EBITDA.
* Paints: The Paints business has demonstrated improving traction, with market-share gains accelerating sequentially and growth nearly 3x the industry’s decorative paints growth. With the business progressing towards its targeted INR 100 Bn revenue within the first three years of full-capacity operations and favourable channel checks, we value Paints at 2.5x FY28E EV/Sales. This implies a valuation of ~1.5x the estimated investment outlay of ~INR 120 Bn.
* Subsidiaries and investments: We apply a 25% holding-company discount to the value of subsidiaries and investments, which we believe remains appropriate and relatively conservative.
We estimate the standalone EBITDA to expand at ~38.5% CAGR over FY26–FY29E, driven by improving scale-up of the Paints business, higher operating volumes across core businesses and increasing contribution from the B2B E-Commerce platform. Based on our SoTP-based valuation framework, we arrive at a 1-year forward target price of INR 3,500/share.
Key Risk:
Possible deterioration in equity capital-market sentiment, caused by macro or external factors unrelated to GRASIM or its underlying businesses, which could affect investor appetite and valuation multiple.
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SEBI Registration no.: INZ 000160131
