Motilal Oswal Sets ₹3,600 Target for Grasim Industries with BUY Rating
Motilal Oswal maintains BUY rating on Grasim Industries with ₹3,600 target price based on SoTP valuation. The recommendation is supported by VSF margin recovery expected in 2HFY26 with >90% utilization levels, stable chemicals business leadership in chlor-alkali and epoxy resins with ~70% chlorine integration target, and long-term growth potential in decorative paints through Birla Opus brand expansion in the under-penetrated Indian market.
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Motilal Oswal has maintained its BUY rating on Grasim Industries with a target price of ₹3,600, citing a compelling structural long-term investment case across the company's diversified business portfolio. The brokerage's recommendation is based on a Sum-of-the-Parts (SoTP) valuation approach.
VSF Business Recovery Outlook
The Viscose Staple Fibre (VSF) business is entering a margin recovery phase in 2HFY26, supported by several favorable factors. The segment benefits from consistently high utilization levels exceeding 90%, which positions it well for the anticipated recovery cycle.
| Key VSF Recovery Drivers: | Details |
|---|---|
| Utilization Levels: | >90% consistently |
| Recovery Timeline: | 2HFY26 |
| China Pricing: | Modest rebound expected |
| Pulp Costs: | Stable |
| Margin Expansion: | Expected over FY27-28E |
The recovery is expected to be driven by a modest rebound in China pricing, stable pulp costs, and the high utilization rates, which should collectively drive an expansion in EBITDA per kg and overall margins over FY27-28E.
Chemicals Business Stability
Grasim Industries maintains a strong position in the chemicals segment through its leadership in chlor-alkali and epoxy resins. The company is making strategic investments to enhance its operational efficiency and market position.
| Chemicals Segment Highlights: | Status |
|---|---|
| Market Position: | Leader in chlor-alkali and epoxy resins |
| Chlorine Integration Target: | ~70% |
| Revenue Growth: | Steady despite caustic soda price correction |
| Business Focus: | Specialty chemicals |
Despite a correction in caustic soda prices due to overcapacity in the market, the company's focus on specialty chemicals and ongoing investments to raise chlorine integration to approximately 70% underpin steady revenue and EBITDA growth prospects.
Paints Business Growth Potential
The decorative paints business, operating under the Birla Opus brand, represents a significant long-term growth opportunity. While currently in an investment-led phase, the business is positioned to capitalize on the large and under-penetrated Indian paints market.
| Birla Opus Strategy: | Focus Areas |
|---|---|
| Market Opportunity: | Large and under-penetrated |
| Current Phase: | Investment-led |
| Distribution: | Rapid expansion |
| Brand Building: | Ongoing investments |
| Future Outlook: | Medium-term operating leverage |
The paints division is experiencing rapid distribution expansion and significant brand investments, positioning the business for medium-term operating leverage once adequate scale is achieved. This scalable growth optionality adds to the overall investment appeal of Grasim Industries.
Investment Recommendation
Motilal Oswal's BUY rating with a target price of ₹3,600 reflects confidence in Grasim Industries' diversified business model and multiple growth drivers across different segments. The SoTP valuation approach accounts for the distinct value propositions of each business vertical, from the cyclical recovery in VSF to the steady performance in chemicals and the growth potential in paints.
Historical Stock Returns for Grasim Industries
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| -1.16% | -2.62% | -2.20% | +0.44% | +21.24% | +175.68% |
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