Core business growth and expansion keep Grasim’s prospects strong

According to the report, the expected increase in demand from the US is also likely to help the growth prospects in view of the US ban on cotton imports from Xinjiang (China). Analysts expect the ban to increase demand for cotton substitutes to meet the needs of apparel manufacturers. Anyway, VSF seems to be more durable than cotton, and it should continue to aid VSF demand. Analysts at Motilal Oswal Financial Services Ltd expect wood based fiber consumption to register 3-5% CAGR in FY19-25 (higher growth for Lyocell, Modal and Viscose) as compared to -1 to 1% growth for cotton estimated to do. The overall dynamics remain conducive to the growing demand for Grasim’s VSF segment, which is part of its core business.

The other core chemicals business saw some unfavorability during the first half and was driven by rising costs. According to analysts, the chemicals division margin shrank more than 200 bps year-on-year, impacted by higher power costs, weak chlorine realizations and a rise in rock salt prices due to cyclones in western India. However, cost pressures may remain behind. While chemical receipts are improving, electricity and fuel costs are also coming down as the prices of coal, crude, etc. Meanwhile, caustic soda prices have risen. There is also an improvement in receipts in view of higher Value Added Product (VAP) contribution. Analysts say Grasim has gained a competitive edge by developing higher VAPs from chlorine.

In addition, a potential capacity expansion of one-third or more (37 per cent and 33 per cent, respectively) in both the VSF and Caustic Soda segments will help support growth. The expansion of Vilayat VSF Brownfield 300 ton per day (out of 2x300TPD) was already commissioned in November-21. Caustic Soda Brownfield Expansion of 170TPD at Rehla and CMS Plant of 150TPD at Vilayat were also commissioned in October-21 and November-21 respectively. Analysts at Motilal Oswal Financial Services estimate the volumes for VSF and Chemicals business at 16% and 15% CAGR respectively in FY 2011-24.

Meanwhile, the company is in the process of foraying into the paint business. Analysts at Sharekhan said the company’s venture into the paint business is expected to fetch premium valuations. This venture is expected to help the company diversify from cyclical business to better return ratio business.

Beyond that, the outlook for its flagship subsidiary, UltraTech, remains strong. It also has stake in other businesses like financial services, renewable energy etc. However, being a holding company the valuation exemption applies. Analysts at Motilal Oswal Financial said the holdco exemption for Grasim’s holding in subsidiaries has been reduced to 40-45% from 60%, two years ago (when the telecom business was a concern of the fund), which we will continue to pursue. hope to maintain. Services.

Not surprisingly, the stock has been rising and is up more than 10% since late December.