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Core business weak; Paints’ revenue promising

Construction underway in the Lyocell expansion project

* GRASIM’s 4QFY25 EBITDA was below our estimates due to lower-thanestimated profitability in both VSF and chemical segments. The company’s EBITDA declined ~58% YoY to INR2.2b (39% miss). OPM contracted 5.3pp YoY to ~2% (est. ~4%). It posted a net loss of INR2.1b (adjusted for INR1.1b write-off towards a JV, as the business became non-viable) against our estimate of a loss of INR996m and profit of INR2.3b in 4QFY24.

* Management indicated that within less than six months of Pan-India operations, Birla Opus has emerged as the third-largest decorative paints brand in India, considering the 4QFY25 exit revenue run-rate. In VSF, global demand is muted, while in China, demand has declined. This slowdown, coupled with tariff uncertainties since mid-Apr’25, has led to a cautious approach in VSF.

* We cut our EPS estimates by 30%/12% for FY26/FY27 due to continuing margin pressure in core businesses and higher investments in branding, distribution network, etc. in the Paints/B2B e-commerce businesses. However, improving revenue traction in the paints and B2B e-commerce businesses remains better than our initial estimates. The current HoldCo discount is 38% vs. the last few years’ range of 38-40%. We reiterate our BUY rating with a TP of INR3,170 based on an SoTP valuation.

VSF margin dips 5.1pp YoY; whereas chemical margin surges 3.5pp YoY

* GRASIM’s standalone revenue/EBITDA came in at INR89.3b/INR2.2b (+32%/-58% YoY and +3%/-39% vs. our estimate) in 4QFY25. It reported a net loss of INR2.1b (adjusted for INR1.14b write-off towards a JV, as the business became non-viable) vs. PAT of INR2.3b in 4QFY24.

* VSF segment: Sales volume was flat YoY (-1% v/s estimates), while realization improved 8% YoY. EBITDA declined 37% YoY to INR2.9b (22% miss) due to higher key input costs and was not fully offset by price hikes. OPM stood at ~7% (down 5.1pp YoY). EBITDA/kg was at INR13 vs. INR21/INR15 in 4QFY24/3QFY25.

* Chemical segment: Sales volume was down 6% YoY, while realization was up 17% YoY. EBITDA grew 51% YoY to INR3.0b (20% miss). OPM was ~13% (up 3.5pp YoY) vs. the estimated ~15%.

* Revenue from Paints and B2b e-commerce businesses (combined) stood at INR21.7b v/s INR15.9b in 3QFY25 and INR10.5b in 2QFY25. Losses in new high-growth businesses stood at INR3.1b vs. INR3.3b/INR3.5b in 3Q/2QFY25.

* In FY25, revenue/EBITDA/PAT stood at INR315.6b/INR11.4b/INR3.3b (+22%/-51%/-80% YoY). OPM dipped 5.3pp to ~4%. In the VSF segment, revenue grew 6% YoY and EBITDA declined 12% YoY. In the Chemicals segment, revenue/EBITDA grew 5%/15% YoY. Operating cash outflow stood at INR254.3m vs. operating cash inflow of INR17.8b in FY24. Capex stood at INR38.4b vs. INR55.3b in FY24. Net cash outflow stood at INR38.6b vs. INR37.5b in FY24.

Highlights from the management commentary

* Within just six months of its pan-India launch, Birla Opus (combined with Birla White Putty) has crossed a ~10% revenue market share as per their estimates, positioning itself as India’s third-largest decorative paints brand.

* More than 175 products with over 1,250+ SKUs are placed in the distribution channel, and 137 depots are operational across India. The company achieved its target of 50,000 dealers on board by the end of FY25.

* The 55K TPA Lyocell project has been approved, and construction is underway in Harihar, Karnataka. Additionally, minor debottlenecking is planned across Harihar, Vilayat, and Nagda.

Valuation and view

* GRASIM's core businesses, namely VSF and Chemicals, are experiencing margin pressure due to global challenges, as demand remains subdued and new capacities for caustic soda are being introduced. However, the Paint and B2B ecommerce businesses delivered a better-than-estimated revenue run rate. Going forward, growth in revenues of these two segments and reduction in losses will be the key monitorables. Management has reaffirmed its guidance of USD1b revenue for the B2B e-commerce business by FY27 and INR100b revenue for the paints business by FY28.

* We reiterate our BUY rating with a TP of INR3,170 as we value its: 1) holding in listed subsidiaries by assigning a discount of 35% on our TP for coverage companies, 2) standalone business at 6x FY27E EV/EBITDA, 3) paint business at 2x of investments, and 4) renewable business at 10x FY27E EV/EBITDA.

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