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Why is Morgan Stanley bullish on Grasim Industries in the medium-term?
Grasim Industries shares jumped in trade after New York, US-based brokerage Morgan Stanley upgraded the rating to 'Overweight', from 'Equal-weight.' The brokerage also increased the price target (PT) to ₹3,500, from ₹2,975 per share, which reflects an upside of 36 per cent.
'We believe there is a strong case for discussed opportunities to play out for Grasim over the next couple of years, making a case for both a re-rating and compounding potential. We raise our price target by ~18 per cent to ₹3,500, implying ~36 per cent returns over the next 9-12 months. We also make Grasim the top pick in our coverage,' said Rahul Gupta, equity analyst, and Ruchika A Dhanuka, research associate at Morgan Stanley, in a note dated June 9.
Why is Morgan Stanley bullish on Grasim Industries?
Morgan Stanley is bullish on Grasim Industries due to multiple positive triggers across its portfolio.
The brokerage sees the next phase of value unlocking underway in the paints business, where Grasim Industries has surprised with strong market share gains over the past couple of quarters.
Although it may not meet its ambitious revenue target of ₹10,000 crore by FY28, analysts believe the company is well-positioned to emerge as the third-largest player in the sector.
'We raise our paints business valuation across scenarios, and now estimate ₹360/share in our SOTP versus ₹150/share previously,' Morgan Stanley analysts said, in a note.
Additionally, UltraTech Cement, a Grasim subsidiary, continues to deliver consistent earnings growth driven by market share gains and cost efficiencies.
'Potential for gains in market share coupled with cost optimisation levers mean Ultratech Cement has a strong multi-year earnings compounding story, we believe. This should drive strong stock performance over the medium term, and be a key driver of stock returns,' the brokerage said.
While core businesses like cellulose and chemicals are expected to grow steadily, albeit modestly, due to near full utilisation levels and relatively lukewarm demand near-term, new-age ventures such as B2B e-commerce and renewables are scaling up quickly, offering fresh growth avenues.
Lastly, the brokerage noted a sustained narrowing of holding company (holdco) discounts, a trend likely to continue as the paints business gains further scale, supporting Grasim's overall valuation.
About Grasim Industries
Grasim Industries, a flagship company of the Aditya Birla Group, stands among India's leading diversified conglomerates.
Since its inception in 1947 as a textile manufacturer, Grasim Industries has grown into a global powerhouse with a strong presence across multiple sectors. It is the world's largest producer of Viscose Staple Fiber (VSF), and a key player in the chemicals industry with products like caustic soda, allied chemicals, and epoxy.
The company has also made major strides in the cement business through its subsidiary UltraTech Cement, India's largest cement producer.
Beyond its industrial stronghold, Grasim Industries is actively shaping the future through its ventures in financial services via Aditya Birla Capital, clean energy under Aditya Birla Renewables, and more recently, its entry into the paints segment with the 'Birla Opus' brand.
It has also forayed into B2B e-commerce with the launch of 'Birla Pivot,' an online marketplace for building materials.
Last checked, Grasim Industries market capitalisation stood at ₹1,84,832.56 crore, BSE data showed. The company falls under the BSE 100 index.
At 11:50 AM, Grasim Industries shares were trading 4.12 per cent higher at ₹2,716.10 per share. In comparison, BSE Sensex was trading flat with a negative bias at 82,441.34 levels.
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