Is Grasim Inds Stock A Good Investment – Grasim Industries Limited is one of the flagship companies of the Aditya Birla Group. It has leadership positions across its key businesses – viscose staple fibre (VSF), cement, chemicals and financial services. Grasim stock has delivered healthy returns over the long run, but is it still a good investment opportunity? Let’s analyze in detail.
Strong Market Position
- Grasim is the world’s largest producer of VSF with a global market share of 14%.
- It is India’s leading cement manufacturer with a market share of 11%.
- Grasim’s subsidiary UltraTech Cement is the third largest cement player globally.
- It also has a significant presence in chemicals and financial services through its holdings.
The leadership positions across businesses provide competitive advantages and ensure strong cash flows.
Diversified Business Mix
Grasim has a presence across viscose staple fibre, cement, chemicals, financial services, fertilizers, insulators and paints. This offers diversification and ensures steady performance across business cycles.
- VSF business accounts for ~40% of revenue
- Cement division contributes ~25% of sales
- Chemicals add ~10% while the rest comes from other divisions
The diversified business profile reduces overall risk for the company.
Strong Financial Performance
- Grasim has delivered a strong financial performance over the past decade with revenues growing at a CAGR of ~11% and EBITDA at ~17% over FY11-21.
- The company has posted consistent profitability with return on capital employed in the range of 11-15%.
- Grasim also has a very healthy balance sheet with net debt to equity ratio below 0.5x.
The strong growth in profits, high margins and robust return ratios signal strong business fundamentals.
Growth Drivers
Grasim has well defined growth levers across its key businesses:
VSF – Brownfield expansions, moving up the textile value chain
Cement – Capacity expansion of UltraTech Cement, greenfield plants
Financial Services – Scaling up lending book of housing finance and life insurance arms
Chemicals – Expanding capacities in caustic soda, epoxy and specialty chemicals
These drivers provide good revenue and profitability visibility going forward.
Strong Parentage
Grasim derives significant benefits from its parent Aditya Birla Group in terms of strong promoter backing, shared synergies, financial flexibility and leadership pipeline.
The Aditya Birla Group is a $50 billion conglomerate with leadership positions across many sectors which gives Grasim access to ample growth opportunities.
Valuations Seem Reasonable
- Grasim stock trades at a 1-year forward P/E of ~11x which seems quite reasonable compared to its historical average multiples.
- The valuations do not seem to fully factor in the company’s growth prospects across its divisions.
- Its holding in UltraTech and other group companies provides additional value.
While cement business faces some near term headwinds, the long growth story remains intact.
Key Risks
Some of the key risks for Grasim are:
- Slowdown in real estate/housing demand affecting cement volumes
- Fluctuating VSF prices and Chinese competition
- Rising fuel and power costs impacting cost structure
- High capex intensity in certain businesses
- Macro-economic risks in the operating geographies
However, Grasim’s market position and diversified business model help mitigate these risks to a large extent.
Overall, Grasim Industries looks well positioned to deliver steady long term growth driven by capacity expansions, move up the value chain in VSF, leverage synergies and tap new opportunities. While businesses like cement face near term headwinds, the long term India growth story seems intact. Its diversified portfolio and strong promoter backing make it a relatively safe bet in uncertain times. Investors can accumulate the stock on dips from a 2-3 year perspective.
Is Grasim Inds Stock A Good Investment? – FAQs
What is Grasim’s market capitalization?
Grasim has a market capitalization of ~Rs. 60,000 crores making it one of the top 30 listed companies in India.
What is Grasim Industries shareholding pattern?
As of Sep 2022, promoters hold ~24% stake in Grasim. FII and DII holdings stand at 11% each while the remaining 54% is held by public and others.
What is the dividend history of Grasim?
Grasim has consistently paid dividends since FY2004. The current dividend yield is 1.1%. It has grown DPS at ~10% CAGR over the past decade.
What is the management’s outlook on VSF business?
Management aims to expand VSF capacity in phases to over 1 million TPA by 2030 driven by growth in textile and non-woven applications. The demand outlook remains robust despite some pricing pressures currently.
How big is the cement business after the UltraTech Cement merger?
Combined cement capacity of Grasim and UltraTech now stands at 120 million tonnes per annum making it the third largest cement player globally. Huge synergies are expected from the merger.
What are the key risks and challenges for Grasim?
Key risks are raw material price volatility, global demand slowdown especially in cement and VSF, high capex intensity, excessive promoter group leverage and delay in ramp up of new capacities. However, Grasim is well positioned to mitigate these risks.
Which are the key businesses driving growth for Grasim?
VSF business, UltraTech Cement, housing finance subsidiary and specialty chemicals vertical offer strong growth prospects driven by capacity expansion, market share gains and leverage of parental strengths.
What is the upside potential forecasted by analysts?
Most analysts have a positive outlook on Grasim with estimated 12 month upside of 20-25% driven by sustained earnings growth across key divisions.
Conclusion
To summarise, Grasim Industries offers a unique play into some of India’s most promising sectors through market leadership positions in viscose, cement and financial services. Its diversified portfolio, strong promoter group and future growth drivers make it well suited to generate steady returns for long term investors. The company seems attractively valued currently trading at just ~11x P/E. Investors can consider accumulating the stock on dips to benefit from India’s structural growth story.
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