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Grasim Industries Ltd. reported standalone revenues of INR68,939mn for Q1FY25, reflecting a 1.9% increase QoQ and a 10.5% increase YoY, driven by strong performance across its diversified business portfolio. The Cellulosic Staple Fibre, Building Materials, and Financial Services segments particularly excelled. However, EBITDA for the quarter declined to INR3,251mn, down 38.3% QoQ and 51.7% YoY, primarily due to investments in the Paints business. The EBITDA margin for the quarter dropped to 4.7%, a decrease of 307 basis points QoQ and 608 basis points YoY. The quarter's PAT stood at negative INR (521) mn, negatively impacted by higher depreciation and interest expenses associated with new growth businesses

* Paint and E-commerce Business: The Paints business commenced commercial production at three plants in April 2024, with over 80% of its 145 product range already placed in the distribution channel. Trial production has also begun at the Chamarajanagar plant, with commercial production expected to start in Q3FY25E. Construction at the other 2 plants is progressing according to plan and is anticipated to be completed within the budgeted project cost. The company's first flagship experience centre store in Mumbai is now operational, with plans to add more such centers in FY25E. Revenue for the B2B e-commerce platform, Birla Pivot, is gradually increasing, with the current quarterly run rate exceeding INR 5,500 mn and a growing number of buyers. Private label products are now available in three categories: plywood, doors, and tiles. The company is also working on building a retail distribution channel for these private labels, along with providing sales support to enhance penetration in its financial services business. Additionally, Grasim is exploring new product categories under Birla Pivot to expand its total addressable market, with a goal of achieving $1 million in revenue within the next three years.

* Cellulosic business: The Cellulosic Fibre Business (formerly known as viscose) reported volumes of 212 KT for Q1FY25, marking a 13.4% YoY increase. Revenue for the cellulosic segment reached INR 37,872 million, reflecting a 0.7% increase QoQ and a 5.7% increase YoY. During the quarter, operating rates in China remained stable at approximately 82%, with inventory levels at 12 days. The business continues to be affected by low consumption across the value chain, though there are signs of recovery. Retail sales in India have been underwhelming, but the company anticipates that the upcoming festival and wedding seasons will boost retail sales. Additionally, expectations of an interest rate cut in the West could improve consumer sentiment. Overall, the company is forecasting a stable outlook for the Cellulosic Fibre Business.

* Chemicals business: The company reported revenues of INR20,656mn for Q1FY25, a decrease of 0.8% QoQ and 3.7% YoY. The average spot price for International Caustic Soda (CFR-SEA) was $469 per ton, marking a 13% increase YoY and a 4% increase QoQ. The company has a positive outlook as both Chinese and domestic consumer demand are improving, and government initiatives are expected to further boost this trend. The management also expects continued strong volume growth in its specialty chemical epoxy business, supported by favorable conditions across all sectors where epoxy is used.

Outlook and Valuation:

Grasim’s chemical division, covering chlorine and caustic soda, is anticipated to benefit from global demand and pricing trends. The company's strategy involves expanding its presence, improving operational efficiencies, and prioritizing sustainability and innovation. The government's ongoing emphasis on infrastructure and housing, financialization, and efforts to boost economic prosperity for a large segment of the population are favorable for the company. Grasim expects to see increased premiumization in this market. Additionally, the positive reception of private label tiles in the B2B sector has prompted plans to broaden the product line with private label plywood and doors. We expect Revenue/ EBITDA to grow at a CAGR of 10.5%/13.9% respectively over FY24-FY26E. We value the company on a SOTP basis to arrive at a TP of INR 2,780, maintaining our rating to BUY

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SEBI Registration no.: INZ 000160131