Grasim’s core business is strong, but success in paints is key to stocks

Analysts caution that the paint business is highly competitive and past experience shows that it has been a difficult task for existing companies to capture market share from each other. In such a situation, moving Grasim forward can be a challenge.

According to domestic brokerage house Edelweiss Securities Limited, Grasim’s main business The position of VSF and Chemicals is strong. “Its balance sheet remains strong (net cash of Rs 96 crore in Q1FY23) and is expected to grow despite capex,” Edelweiss said in a report on August 29.

The report further states that despite the recent increase in VSF capacity by about 36%, it is already operating at over 90% utilization. “Among chemicals, caustic soda capacity is on track to grow to >1.5mtpa in FY24 (1.15mtpa in FY22), while chlorine consumption in VAPs continues to grow (32% vs 28% YoY in Q1FY23), It said. Mtpa is short for million tonnes per year.

That said, investors in this stock will closely monitor its foray into new territories. “While we appreciate Grasim’s effort to drive growth, the success of these new capital-intensive and highly competitive businesses is the key to propelling the stock forward,” the Edelweiss report said.

So far this calendar year, the stock of Grasim Industries has gained about 1.5 per cent. This sector index is slightly better than Nifty 500’s negative return of 0.5%.

Meanwhile, the company has also invested in cement business through its subsidiary UltraTech Cement Ltd. With the entry of the Adani Group, analysts warn that competition is likely to heat up in that sector as well.

Adani Group’s aggressive growth plans could hamper the industry’s already weak pricing power. Note that input cost inflation has kept cement stocks at weak levels in recent quarters. Even though petroleum coke and coal prices are coming down, a meaningful improvement in the sector’s operating margins is possible only after Q3 FY23.

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