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Grasim Shares Climb As Motilal Oswal Upgrades Stock To 'Buy'

Grasim Industries logged the biggest intraday gain in over 11 weeks after Motilal Oswal upgraded the stock to 'buy'

<div class="paragraphs"><p>Grasim namesign and logo seen outisde the company's&nbsp;plant in Nagda. (Source: Company website)</p></div>
Grasim namesign and logo seen outisde the company's plant in Nagda. (Source: Company website)

Shares of Grasim Industries Ltd. rose after Motilal Oswal Financial Services Ltd. upgraded its rating to 'buy' citing demand growth and possible benefits from the U.S. ban on Chinese cotton imports.

Grasim's shares rose over 4.48%, marking the biggest single day gain in over 11 weeks, after Motilal Oswal upgrade. Trading volume for the stock was nearly three times the 30-day average volume.

Motilal Oswal cited possible benefits from changes in cotton industry dynamics, and demand growth in the viscose staple fibre segment. The U.S. ban on cotton imports from Xinjiang region of China is likely to trigger a shift to substitute products which could aid Grasim Industries, the Jan. 6 note said.

The brokerage raised the target price to Rs 2,050 from Rs 2,035; an implied upside of 19%. The stock closed at Rs 1,797.65 apiece on Friday.

Of the nine analysts tracking the company, seven maintain a 'buy', one recommends 'hold' and one has a 'sell' rating, according to Bloomberg data. The overall consensus price implied an upside of 11.4%.

Grasim Shares Climb As Motilal Oswal Upgrades Stock To 'Buy'

Here are the highlights from Motilal Oswal's note on Grasim Industries:

Motilal Oswal

  • Upgrades stock to 'buy' from 'neutral' with the target price raised to Rs 2,050 from Rs 2,035 apiece, an implied return of 19%.

  • Viscose staple fibre segment demand growth is likely to outpace cotton until FY25E.

  • VSF seems to be more sustainable than cotton in the long run due to (i) lower water/pesticides requirement and (ii) no competition from food crops from arable lands.

  • Chemical segment's operating margin should improve to 19% in FY23E from 13% in FY21 as the company focuses on back integration to improve the usage of chlorine.

  • Capacity expansions in VSF/caustic soda segments should aid volume and profits.

  • Estimates a volume compound annual growth rate of 16% for VSF and 15% for chemical business, over FY21-24.

  • Grasim's intentions to enter the paints segment could aid growth as brand recall, strong balance sheet and distribution network augur well for its growth prospects.

  • Key Risks: Delay in entry into the paints business, inability to gain volumes in the paints segment and margin pressure on the VSF/caustic soda business.