Buy Grasim Industries Ltd Target Rs. 3,420 By Choice Broking Ltd
Firing on All Cylinders, Paints Business Performing as per Plan
We maintain our BUY rating on Grasim Industries (GRASIM) with a TP of INR 3,420 (INR 3,300 earlier). Our valuation framework for GRASIM is as follows:
a) Businesses ex-Paints under the parent entity (standalone): We value them on EV/EBITDA basis, that is, Cellulosic Fibre (7x on FY27E EBITDA), Chemicals (7x on FY27E EBITDA), Others cluster – Textiles, Insulators & Renewables (7x on FY27E EBITDA) and B2B E-Commerce (8x on FY27E EBITDA).
b) Paints Business: As we get increasing evidence of success of the paints business (high single-digit market share, 24% capacity share by Q2 end, on track to achieve INR 100 Bn Revenue within 3 years from full capacity coming onstream, positive feedback from channel checks). We value paints business on 2.5x FY27E EV/Sales, translating to ~1.5x investment outlay of ~INR 120 Bn.
c) Subsidiaries/Investments: We refresh the valuation of the subsidiary under our coverage, that is, UTCEM, to reflect our post-Q1 changes, where we increased our fair value estimate to INR 3.8 Trn. We also mark to market the latest market valuation of other key investments – Aditya Birla Capital (subsidiary), Vodafone Idea, ABFRL and Hindalco. We incorporate a holding company discount of 25%, which is reasonable yet conservative.
2) We forecast standalone EBITDA to grow by 54% over FY25–FY28E to reflect increasing success in the paint business, higher volumes and spreads in the commodity businesses and expanding adoption of the B2B E-Commerce platform.
We arrive at a 1-year forward TP of INR 3,420 per share based on the framework discussed above. Risks to the stock price include: 1) A notable dent to Grasim and group companies’ risk appetite in the equity markets due to external factors. 2) A significant slowdown in the domestic economy impacting demand across the board for Building Material, Financial Services, Chemicals and the Textiles sector.
Q1FY26 Results: EBITDA beat driven by Chemicals business
GRASIM reported Q1FY26 Revenue and EBITDA of INR 92,23 Mn (+33.8% YoY, +3.3% QoQ) and INR 3,846 Mn (+18.3% YoY, +74.4% QoQ) vs Choice Institutional Equities (CIE) estimates of INR 88,384 Mn and INR 2,202 Mn, respectively. In our view, the market expectation of Q1FY26 EBITDA was in the range of INR 2,000– 2,600 Mn, so the reported numbers are well ahead of street expectation
The company reported a loss of INR 1,182 Mn in Q1 (vs CIE est. INR -3,109 Mn). EPS for Q1FY26 is INR (1.7).
Cellulosic Fibre revenue for the quarter came at INR 40,430 Mn, up 6.8% YoY and down 0.2% QoQ, led by increased volume of CSF and stable realisation. EBITDA for the business came at INR 3,220 Mn, down 20.5% YoY and up 9.9% QoQ, the YoY decline in EBITDA was due to higher key input prices, which were passed on partially.
Chemicals Business revenue for the quarter came at INR 23,910 Mn, up 15.8% YoY and 3.9% QoQ, led by higher volume and improved realisation. EBITDA for the business came at INR 4,220 Mn, up 36.1% YoY and 42.6% QoQ, driven by higher profitability in the Caustic & Chlorine Derivates segment.
Building Materials consolidated revenue for the quarter came at INR 237.3 Bn, up 22.0% YoY, with a major share from the Cement business. EBITDA for the business came at INR 42.9 Bn, up 48.0% YoY.
For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131
