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 Grasim Industries Ltd. Q2FY24 standalone revenues came at INR64,420 mn, up 3.3% QoQ but down 4.5% YoY. Raw Material cost during Q2 stood at INR33,971 mn vs INR30,977 mn for Q1FY24, up 8.9% YoY. The higher Rm Cost for the quarter had impacted the margins for the quarter. Q2FY24 EBITDA came at INR5,937 mn vs INR6,735 mn for Q1FY24, down 37.9% YoY. The EBITDA for the quarter is net of pre-operative expenses of the new businesses. PAT for Q2FY24 came at INR7,950 mn, up 123.8% QoQ but down 17.6% YoY. EPS for the quarter came at INR12.1.

* Viscose business: In Q2FY24, the company's VSF sales volume saw a robust 23.7% YoY increase to 210KT. The uptick in domestic demand, fueled by the festive season, contrasted with weak export demand. China's operating rates nudged to 85% in Q2FY24; a slight increase compared to 82% in Q1FY24. Domestic prices remained under pressure due to the softening of international VSF prices by 7% from an average of $1.67/kg in Q1FY24 to $1.55/kg in Q2FY24. Although segment revenue rose 8.5% QoQ to INR 38,889 mn, it experienced a slight 0.4% YoY dip. The viscose business EBITDA surged 20.1% QoQ and an impressive 44.5% YoY, lead by heightened sales volume and lower input prices. Nevertheless, VFY business margins were pressured by China's assertive pricing strategy, prompting necessary domestic price adjustments.

* Chemicals business: Caustic soda sales volume increased to 306 KT from 292 KT in Q1FY24, marking a 3% YoY growth. International Caustic Soda spot prices (CFR SEA) remained relatively stable at approximately $417/ton in Q2FY24, maintaining a slight increase from $415/ton in Q1FY24. However, prices experienced a dip to $383/ton in July 2023, recovering later in the quarter and reaching $470/ton in September 2023. The chemical business revenue totaled INR 19,884 mn, reflecting a decline of 7.3% QoQ and a more substantial decrease of 26.6% YoY. This reduction in revenue was primarily attributed to lower caustic soda realizations. The EBITDA for the quarter was INR 2,363 mn, marking a significant 34.0% QoQ decrease and a substantial 61.2% YoY decline. Notably, the specialty chemicals segment, encompassing epoxy polymers and curing agents, faced margin challenges due to lower realizations compared to Q1FY24.

* Paints business expansion plan on track: The paints business is set to kick off its commercial operations in Q4FY24, with the brand name "Birla Opus" being officially announced by the company. Consent to operate plants has been secured for three key locations: Panipat, Ludhiana, and Cheyyar. In the same quarter, the company introduced a painting service named "Paint Craft" in eight major Indian cities. It's noteworthy that a significant portion of the capex will be allocated to the Paint Business.

* Capex Plan: In Q2FY24, the total capex outlay amounted to INR 16,500 mn, with a significant portion of INR 12,690 mn allocated to the Paints Business. The Board approved a capex of INR 1,440 mn for various businesses and endorsed the rephasing of spending for previously approved capex, involving an additional expenditure of INR 1,380 mn in the current financial year. Consequently, the revised budgeted spend for FY24 now stands at INR 59,290 mn.

* Outlook and Valuation: Grasim Industries is making strides in paints and e-commerce. Birla Pivot, a B2B e-commerce platform for construction materials, has been launched, covering markets in Maharashtra, Madhya Pradesh, and Delhi. Over 120 brands are on board. The paints business is set to start in Q4FY24 with the brand name "Birla Opus." These initiatives showcase Grasim's commitment to expansion and innovation in diverse sectors to drive further growth. We have introduced FY26E and are expecting Revenue/EBITDA to grow at a CAGR of 7.6%/10.4% respectively over FY23-FY26E. We value the company on a SOTP basis to arrive at a TP of INR 2,100, upgrading our rating to ADD