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Execution driving the next leg of growth Constructive VSF outlook; integration-led growth in Chemical/Paint

* We reiterate our BUY rating on GRASIM with our SoTP-based TP of INR3,770, driven by improving profitability in its core businesses. VSF business is expected to witness significant improvements in profitability in the near term, led by the sustainability of higher prices. Chemical business will benefit from the ramp-up of epoxy capacity, increasing chlorine integration and higher usage of renewable energy. We also factor in a reduction in losses from the new business segments  Paint and B2B Ecommerce.

* The sustainability of high VSF prices should boost the profitability of the VSF segment in 1HFY27. Based on the current VSF prices, we expect profitability to increase by INR12/kg to INR36/kg by 2QFY27E (vs. INR24/kg in 4QFY26). GRASIM’s backward integration and rising mix of specialty fibers should also drive improvement in realizations and margins. It is also accelerating its Lyocell expansion, taking total Lyocell capacity to 210ktpa by FY30E.

* The Chemical segment’s profitability should improve on the back of

1) Higher chlorine integration (~67%/70% in FY27/28E vs. 64% in FY26), which will reduce transportation costs and increase the utilization of its caustic plant

2) Lower power costs through a higher renewable energy share  targeting 45% by FY27-end vs. 24% in FY26

3) Ramp-up of Epoxy capacity, which will lead to a better product mix and margin gains. We estimate chlorine integration to increase by 2pp after the commissioning of Phase I of Lubrizol’s CPVC project.

* In Paint, after all six greenfield plants become operational, the focus shifts to loss reduction. GRASIM has taken a ~2pp higher price hike than the competition in CY26 and achieved ~10% revenue market share in Mar’26. Management has reiterated its target of achieving INR100b in revenue and a breakeven by FY28E (operating losses in Paint was ~INR12b in FY26). Revenue traction in B2B e-commerce business is above management’s earlier guidance and this business is estimated to achieve a breakeven in 2HFY27E

Valuation and view

* The near-term outlook for the VSF business has improved in the last few months, and we remain constructive in the medium term given its high growth potential than other competing fibers and the company’s focus on specialty fibers. In the chemical business, pricing remains range-bound, and we estimate the integration of new capacities to boost margins. Further, the overall traction in its high-growth businesses (Paint and B2B E-commerce) is better than our initial expectations, and the company has seen steady improvements in revenue and market share over the last few quarters. We believe that with the increasing scale of operation and pricing actions, losses in new business verticals should decline in the coming quarters.

* We reiterate our BUY rating with a TP of INR3,770, as we value its:

1) Holdings in listed subsidiary companies by assigning a discount of 35%

2) VSF and chemical business at 7x FY28E EV/EBITDA

3) Paint business at 3.0x of FY28E revenue

4) B2B e-commerce at 1x of FY28E revenue

5) Renewable business at 10x FY28E EV/EBITDA.

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