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Upswing gains momentum, outlook brightens Grasim Industries Ltd, a subsidiary of Aditya Birla Group, is a diversified company with interests in cement, textiles, retail and chemicals. It is also the world’s largest producer and exporter of viscose rayon fibre.

* In Q1FY25, consolidated revenue increased 9.0% YoY to Rs. 33,861cr, aided by steady growth in the building materials, cellulosic staple fibre and financial services businesses.

* EBITDA declined 4.4% YoY to Rs. 4,760cr and margin contracted to 14.1%, led by building materials segment with lower price realisation in cement coupled with investments in paints business.

* Grasim is poised for robust growth, fueled by government initiatives, improved demand for viscose staple fibre, favourable cement outlook, improved traction in Birla Pivot and increased production capacity in the paints decorative segment. We are optimistic about its long-term growth and reiterate our BUY rating with a revised target price of Rs. 3,058 based on the sum-of-the-parts (SOTP) valuation.

Financial services and cements businesses drive topline surge

In Q1FY25, Grasim's consolidated revenue grew 9.0% YoY to Rs. 33,861cr, driven by the financial services, building materials and cellulosic staple fibre businesses. Aditya Birla Capital, the financial services arm, demonstrated a significant 25.3% YoY growth, reaching Rs. 8,807cr, attributed to an expanding lending portfolio and growing market presence. The cellulosic staple fibre business grew 5.7% YoY to Rs. 3,787cr, driven by improving domestic demand and favourable prices. The building materials segment grew 4.7% YoY to Rs. 18,701cr, led by increased cement sales volume, expanding paints business capacity and a thriving B2B e-commerce platform with a high rate of repeat orders. While other segments collectively grew 5.9% YoY to Rs. 798cr, the chemicals business experienced a 3.7% YoY decline to Rs. 2,066cr, affected by the shutdown of the Vilayat plant.

Costs surge, margin contracts

EBITDA declined by 4.4% YoY to Rs. 4,760cr and margin contracted 190bps YoY to 14.1%, primarily due to rising employee benefit expenses, selling and administrative costs, insurance business-related benefits. Lower cement price realisations and investments in the paints segment also impacted on EBITDA margin. Reported profit after tax decreased 12.0% YoY to Rs. 2,268cr, mainly due to elevated finance costs.

Key concall highlights

* Aditya Birla Capital's lending portfolio grew 37% YoY to Rs. 127,705cr, with assets under management (AUM) up 20% to Rs. 462,891cr.

* Grasim's FY25 capex is anticipated to be Rs. 4,500cr, with Rs. 3,000cr allocated for new business growth initiatives.

* Birla Pivot, the B2B e-commerce platform, had a quarterly run rate of over Rs. 550cr and expanded to over 200 cities in 25 states and union territories

Valuation

Grasim, with its diversified presence across various sectors, is strategically positioned to leverage growth opportunities. The government's ongoing emphasis on infrastructure and housing is expected to benefit the company. Viscose staple fibre is expected to improve during the upcoming festival and wedding seasons. The financial services segment is expected to maintain robust growth, driven by digital expansion and new product launches. Additionally, favourable cement prices, an expanding customer base in Birla Pivot, and rising production across products and investments in the paints decorative business are poised to contribute to Grasim's strong earnings performance. Hence, we reiterate our BUY rating with a revised target price of Rs. 3,058 based on SOTP valuation

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