Grasim's diversified growth strategy set for long-term gains: Motilal Oswal

Grasim Industries is gearing up for a period of structural growth, underpinned by multiple engines spanning viscose staple fibre (VSF), specialty chemicals, and decorative paints, according to analysts at Motilal Oswal. 

 

With its VSF business entering a margin recovery phase, a steady chemical segment, and a rapidly expanding paint business, the company presents a compelling long-term investment case, the brokerage said, reiterating a ‘Buy’ rating with a target price of ₹3,600.

VSF recovery on the horizon

Grasim is one of the largest global producers of VSF, operating 880,000 tonnes per annum across plants in Gujarat, Madhya Pradesh, and Karnataka. A new 110,000-tonne plant at Harihar, Karnataka, is expected to start operations by mid-FY27. The company produces a diversified portfolio of fibres, including specialty lines like Modal, Lyocell, and recycled Birla Reviva, which contributed around 24 per cent of VSF volumes in Q2FY26.

 

 

Over the past two years, VSF prices have remained largely stagnant, pressured by weak Chinese demand, which also pushed inventories higher. However, Chinese prices have rebounded modestly, rising about 4 per cent sequentially in Q3FY26, while pulp costs have remained flat. This combination is expected to drive profit improvement in the second half of FY26, with estimated average Ebitda per kilogramme increasing to ₹18.3 from ₹15.3 in H1FY26. Motilal Oswal forecasts VSF revenue and Ebitda to grow at ~5 per cent and ~17 per cent CAGR, respectively, over FY26-28, with margins improving to 11 per cent by FY28.

Specialty chemicals provide steady growth anchor

Grasim’s chemical segment, India’s largest producer of chlor-alkali and epoxy resins, continues to offer a stable growth trajectory. The company’s 1.5 million tonnes per annum caustic soda capacity and 246,000 tonnes of specialty chemicals allow it to maintain market leadership, even amid global oversupply pressures. Ongoing investments, including a 50,000-tonne ECH plant and a 50,000-tonne CPVC resin plant, aim to raise chlorine integration to ~70 per cent by FY28, improving efficiency and profitability.  ALSO READ | Ixigo shares rally 7% as JM Financial upgrades to 'Buy', eyes 29% upside 

Motilal Oswal expects the chemical segment to deliver revenue and Ebitda CAGRs of ~12 per cent and 13 per cent over FY26-28, with operating margins stable around 15 per cent. The company’s focus on sustainable operations, including over 25 per cent renewable energy usage and water efficiency measures, further supports long-term competitiveness.

Birla Opus reshaping the paint market

Grasim’s paint business, Birla Opus, is emerging as a strong challenger in India’s decorative paints industry, a market historically dominated by Asian Paints and Berger. While both incumbents have seen revenue growth moderate recently, Birla Opus has scaled rapidly, following the commissioning of its 1,332 MLPA Kharagpur plant. With around 24 per cent of organised industry capacity, the business has expanded its distribution to over 10,000 towns and 50,000 dealers, offering more than 190 products and over 1,750 SKUs across six decorative categories.

 

The company is investing heavily in brand building, including campaigns like “Duniya Ko Rang Do” and celebrity-led initiatives, as well as developing a contractor and painter ecosystem of over 600,000 professionals. Motilal Oswal said the focus remains on scale and market share growth rather than near-term profitability, with the long-term demand outlook underpinned by rising incomes, urbanisation, and government housing initiatives.  ALSO READ | Eternal share price rises 4%, nears 1-month high on hope of foreign inflows

Valuation and outlook

 

Grasim has now commissioned all six plants in its paint business, receiving strong market traction. Analysts expect the combined Ebitda of the VSF and chemical segments to grow at ~13 per cent CAGR over FY26-28, while Ebitda per kilogramme for VSF is projected to reach ₹21.7 by FY28 from ₹16.8 in FY26.

 

The brokerage values Grasim at a sum-of-the-parts (SoTP) basis, assigning discounts to listed subsidiaries, multiples for standalone businesses, paints, B2B e-commerce, and renewable ventures, resulting in a target price of ₹3,600. 

 

With multiple growth levers, Grasim appears well-placed for structural long-term gains, making it an attractive pick for investors, analysts said. 

 

Disclaimer: The views or investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.