Emkay Global

Grasim Industries (Buy)

CMP: ₹783.75

Target: ₹939

Grasim Industries’ segments include viscose staple fibre (VSF) and wood pulp; cement, which includes grey, white and allied products; chemicals, which includes caustic soda and allied chemicals, and others, which includes textiles.

Grasim Industries’ holding company discount for its holdings in subsidiary companies has increased to a historical peak of 72 per cent from an average discount of 49.7 per cent between June 2010 and September 2019. The EV of Grasim is 0.8x of its holding in listed investments.

We take into account the company’s obligation toward VIL (11.6 per cent holding) and adjust the standalone debt for it. In our view, the impact on Grasim’s stock price should be ₹187 per share (refer Exhibits 10-12), which the market has already priced in.

In its standalone business, margins have come under pressure recently due to the decline in VSF/Caustic soda prices. However, the capacity expansion in the VSF and chemical segments should help boost profitability in the long run.

We reduce our SoTP valuation-based TP to ₹939 from ₹1,055 due to Grasim’s obligation toward VIL’s debt. However, we reiterate Buy rating and turn OW on the name in sector EAP.

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