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Betting big on new growth platforms

We maintain our BUY rating on Grasim Industries (GRASIM) with a TP of INR 3,500 (vs earlier INR 3,420).

1) Our valuation framework for GRASIM is as follows: a) Businesses ex-Paints under the parent entity (standalone), we value them on an EV/EBITDA basis, that is Cellulosic Fibre (7x on FY27E EBITDA), Chemicals (7x on FY27E EBITDA), Other clusters – Textiles, Insulators & Renewables (7x on FY27E EBITDA) and B2B E-Commerce (8x on FY27E EBITDA). b) Paints Business: As we get increasing evidence of the success of the Paints business (accelerating its market share gain QoQ with nearly 3x the Indian decorative paints industry growth rate). GRASIM is on track to achieve INR 100 Bn in revenue in the first 3 years from full capacity coming on-stream and strong positive feedback from channel checks. We value the Paints business on 2.5x FY27E EV/Sales, which translates to ~1.5x investment outlay of ~INR 120 Bn. c) Subsidiaries/Investments We employ a holding company discount of 25%, which is reasonable, yet conservative.

2) We are positive on GRASIM owing to: 1) Targeting the number 2 position in Paints with INR 100 Bn of run-rate by FY28E, 2) Birla Pivot to reach breakeven by FY27 exit, which will scale up, driving margin expansion, 3) Chemical to reach 40%+ renewable usage by FY27 and 4) 55,000 TPA of specialty fibre capacity addition to support premium mix.

2) We expect EBITDA for the standalone entity to grow by ~37.7% over FY25– FY28E to reflect increasing success in the Paints business, higher volumes and spreads in the commodity businesses and increasing adoption of the B2B ECommerce platform.

We arrive at a 1-year forward target price of INR 3,500 per share based on the framework discussed above. Risks to the stock price include: 1) A potential dent to the appetite in the equity capital markets due to factors external to GRASIM & group companies.

Q3FY26 result: Revenue growth supported by demand uptick; Earnings disappoint

GRASIM reported Q3FY26 revenue and EBITDA of INR 1,04,318 Mn (+28.5% YoY, +8.5% QoQ) and INR 4,792 Mn (+77.1% YoY, +30.9% QoQ) vs CIE estimate of INR 97,976 Mn and INR 3,986 Mn, respectively. The company reported a loss of INR 1,744 Mn in Q3 (vs CIE estimate INR -1,210 Mn). EPS for Q3FY26 is INR (2.6)

Cellulosic Fibre revenue for the quarter came at INR 42,979 Mn, up 9.2% YoY and 3.6% QoQ. The China CSF market witnessed a seasonal recovery with operating rates in Q3FY26 reaching their highest level of 94% as compared to 89% in Q3FY25. EBITDA for the business came in at INR 4,912 Mn, down 48.4% YoY and up 40.3% QoQ. The growth was led by operating efficiency and lower key input cost (pulp & caustic).

Chemicals Business revenue for the quarter came in at INR 23,452 Mn, up 5.4% YoY and down 2.2% QoQ. EBITDA for the business came in at INR 3,154 Mn, down 4.1% YoY and down 13.6% QoQ, due to lower ECU and lower profitability in Specialty Chemicals business.

Building Materials consolidated revenue for the quarter came in at INR 251.7 Bn, up 30.0% YoY, with a major share from the Cement business. EBITDA for the business came in at INR 37.4 Bn, up 33.0% YoY.

Important Disclosure

Analyst’s coverage transfer: The analyst’s responsibility for cement coverage has been transferred to Ashutosh Murarka. For GRASIM, the recommendation remains unchanged, while the target price has been revised.

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