Grasim Industries misses Q3 estimates but brokerages retain the ‘buy’ tag

Grasim Industries Q3: On a sequential basis, the profit tanked 73 percent, compared to a profit of Rs 964 crore recorded during the quarter ended September 30, 2022.

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Shares of Grasim Industries are flat in early trade on February 15, reacting to the company’s weak December quarter earnings.

Grasim Industries has reported a 47 percent on-year decline in its standalone profit for the third quarter ended December 2022 (Q3FY23) at Rs 257 crore, compared to a profit of Rs 489 crore registered in the year-ago period.

The number missed the street’s expectations despite a favourable tax expense as the company decided to opt for a lower tax regime from the financial year 2022-23 in terms of the provision of Section 115BAA of Income-Tax Act, 1961.

On a sequential basis, the profit tanked 73 percent, compared to a profit of Rs 964 crore recorded during the quarter ended September 30, 2022.

Standalone revenue for the Aditya Birla Group flagship rose 7 percent to Rs 6,196 crore as against a revenue of Rs 5,785 crore recorded a year ago. On a sequential basis, the revenue is down 8 percent from Rs 6,745 crore it earned during the preceding quarter.

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Here is what brokerages have to say about the stock and the company after the December quarter earnings:

Research house Jefferies has kept the ‘buy’ rating on the stock with a target price of Rs 2,000 per share. However, the report notes that the company had a large miss in the Q3 EBITDA.

The operating profit of chemicals business dipped due to easing realisations, while VSF operating profit fell because of weak demand and price and cost pressures.

Despite this, the report notes that progress is on track for the keenly watched paints segment, with a launch planned for the fourth quarter.

The report suggests that a reversal could be round the corner, but timing is tough to predict. Research house has cut FY23/FY24 EBITDA estimates to reflect weak pricing.

Morgan Stanley has an overweight rating on the stock with a target price of Rs 1,960 per share.

According to its report, the company’s Q3 standalone operating profit missed expectations due to weakness in both the VSF and chemicals businesses. The report also highlights that both VSF and Chemicals businesses had negative surprises in volumes and realisations. Despite this, the timelines for the launch of the Paints and B2B businesses remain on track.

Brokerage house Sharekhan has retained the ‘buy’ rating on the stock with a revised price target of Rs 1,900

The company’s viscose business is expected to face near-term headwinds in terms of demand and pricing, led by increased Indonesian imports and weak exports market. However, as global textile demand picks up, it should see volume growth and OPM reverting, said Sharekhan.

The company’s chemicals business continues to fare well, although operating profit margin (OPM) is expected to normalise.

The company’s expedited expansion in paints is likely to provide the next leg of growth for the company.

Further, the outlook for its key subsidiary UltraTech remains healthy, Sharekhan added.

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