Grasim Industries Ltd, a flagship of the Aditya Birla Group, exhibits a blend of strengths and areas of caution. With a current stock price of ₹2308, slightly below its intrinsic value of ₹3308.57, it suggests potential for growth. The company boasts a solid operating profit margin (OPM) of 20.1% and a consistent promoter holding at 43.1%, with no pledged shares. However, a debt to equity ratio of 1.47 indicates higher leverage, contrasting with the preferable low debt scenario. The company has managed a decent sales growth of 16.0% over the past five years and a return on equity (ROE) slightly below 9%. The dividend yield is modest at 0.43%. Based on these metrics, a cautious buy recommendation is advised, considering the company’s leverage and the potential for growth implied by the gap between its current price and intrinsic value, alongside its strong parentage and diversified business operations. Investors should closely monitor its debt levels and profitability trends for future investment decisions.
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TLDR of the article:
Company Data:
- Market Cap: ₹1,54,285 Cr.
- Current Price: ₹2,308
- Stock P/E: 27.4
- Book Value: ₹1,222
- Dividend Yield: 0.43%
- ROCE: 9.97%
- ROE: 8.85%
- OPM: 20.1%
- Sales growth 5 Years: 16.0%
- Debt to Equity: 1.47
- Promoter Holding: 43.1%
- Pledged Percentage: 0.00%
Key Highlights:
- The company’s debt-to-equity ratio is relatively high at 1.47
- Promoter holding has remained consistent at around 43%, with no pledged shares
- Operating Profit Margin (OPM) has been stable at around 20%
- The company’s P/E ratio of 27.4 is in line with the industry median
- ROE has been low at 8.97% over the last 3 years
- Dividend yield is low at 0.43%
Recommendation: Based on the provided data and parameters, Grasim Industries Ltd receives a CAUTION recommendation. The company has a higher debt-to-equity ratio of 1.47, which may indicate increased financial risk. While the promoter holding has remained consistent with no pledged shares, the company’s ROE has been low at 8.97% over the last 3 years. The P/E ratio of 27.4 is in line with the industry median but is relatively high. Additionally, the dividend yield is low at 0.43%. Investors should closely monitor the company’s debt levels, profitability, and growth prospects before making an investment decision.
Company Introduction, Profile
Grasim Industries Ltd, the flagship company of the Aditya Birla Group, is one of India’s largest private sector companies. The company’s core businesses include viscose staple fiber (VSF), caustic soda, specialty chemicals, and rayon-grade wood pulp (RGWP), with plants at multiple locations. Grasim Industries Ltd also has interests in fertilizers and textiles. With a market cap of ₹1,54,285 crore and sales of ₹1,26,713 crore, the company has a strong presence in the textile industry. Grasim Industries Ltd has delivered a 5-year sales growth of 16% and a 5-year profit variance of 19.3%. The company’s operating profit margin (OPM) stands at 20.1%, and its return on capital employed (ROCE) is 9.97%. Despite its strong market position, the company’s return on equity (ROE) has been low at 8.97% over the last 3 years, and its dividend payout has been at 10.7% of profits during the same period.
Should We Buy, Sell or Hold This Stock and Why?
Based on the provided data, investors should approach Grasim Industries Ltd with caution. The company’s debt-to-equity ratio of 1.47 is relatively high, indicating increased financial risk. While the promoter holding has remained consistent at around 43% with no pledged shares, the company’s ROE has been low at 8.97% over the last 3 years. The P/E ratio of 27.4 is in line with the industry median but is relatively high. Additionally, the dividend yield is low at 0.43%. On the positive side, the company has a stable operating profit margin (OPM) at around 20% and has shown consistent sales growth over the past 5 years. However, the low ROE and high debt-to-equity ratio may concern investors. It is advisable to monitor the company’s debt levels, profitability, and growth prospects closely before making an investment decision. A cautious approach is recommended until the company improves its financial metrics.
Vital Company Ratios
To understand Grasim Industries Ltd’s financial health, here are some key ratios:
- Debt-to-Equity Ratio (1.47): This high ratio indicates that the company has more debt compared to its equity, which may increase financial risk.
- Operating Profit Margin (20.1%): This ratio shows that the company retains 20.1% of its revenue as profit after deducting operating expenses, which is a stable margin.
- Return on Equity (8.85%): The low ROE suggests that the company generates lower profits for its shareholders compared to its peers.
- Price-to-Earnings Ratio (27.4): The company’s P/E ratio is in line with the industry median, indicating that the stock is fairly valued.
- Dividend Yield (0.43%): Grasim Industries Ltd offers a low dividend yield, which may not be attractive for income-seeking investors.
Investors should consider these ratios along with the company’s growth prospects and market position before making investment decisions.
Data from each year or quarter:
- Promoter holding: Increased slightly from 42.75% in Dec 2022 to 43.05% in Feb 2024
- FII holding: Decreased from 12.58% in Dec 2022 to 12.43% in Feb 2024
- DII holding: Increased from 16.48% in Dec 2022 to 16.76% in Feb 2024
- Sales trend: Quarterly sales increased from ₹28,638 crore in Dec 2022 to ₹31,965 crore in Dec 2023
- Profit trend: Net profit decreased from ₹4,455 crore in Dec 2022 to ₹2,603 crore in Dec 2023
- Debt trend: Total debt increased from ₹74,733 crore in Mar 2022 to ₹121,928 crore in Sep 2023
- Margin trend: OPM increased from 17% in Dec 2022 to 22% in Dec 2023
- Company PE: 27.4 Industry PE: 27.4
- Gap between intrinsic stock value (₹3,308.57) and current market price (₹2,308): ₹1,000.57
- Market cap: ₹1,54,285 crore
- Dividend payout: 10% in Mar 2023
Competing companies and their performance
Grasim Industries Ltd’s main competitors in the Textiles – Manmade sector include Bombay Dyeing, Filatex India, Indo Rama Synthetics, Century Enka, Vardhman Acrylics, and Pasupati Acrylon. Among these, Grasim Industries Ltd has the highest market cap of ₹1,54,285 crore, significantly higher than the second-largest competitor, Bombay Dyeing, at ₹3,302 crore. Grasim Industries Ltd’s P/E ratio of 27.42 is in line with the industry median of 27.69. The company’s ROCE of 9.97% is lower than the industry median of 12.73%. Grasim Industries Ltd reported the highest quarterly net profit of ₹2,603 crore, while Indo Rama Synthetics reported a loss of ₹99 crore. Grasim Industries Ltd’s quarterly sales of ₹31,965 crore are significantly higher than its peers, with the closest being Filatex India at ₹1,083 crore. Overall, Grasim Industries Ltd maintains a dominant position in terms of market cap and sales, but its ROCE is lower than the industry median.
Recommendation: Based on the provided data and parameters, Grasim Industries Ltd receives a CAUTION recommendation. The company has a higher debt-to-equity ratio of 1.47, which may indicate increased financial risk. While the promoter holding has remained consistent and increased slightly, the company’s ROE has been low at 8.97% over the last 3 years. The P/E ratio of 27.4 is in line with the industry median but is relatively high. Additionally, the dividend yield is low at 0.43%. Investors should closely monitor the company’s debt levels, profitability, and growth prospects before making an investment decision.
Is This Stock Overvalued or Undervalued?
Based on the provided data, Grasim Industries Ltd appears to be undervalued. The intrinsic value of the stock is estimated at ₹3,308.57, while the current market price is ₹2,308, indicating a significant gap of ₹1,000.57. This suggests that the stock is trading at a discount compared to its intrinsic value. However, the company’s P/E ratio of 27.4 is in line with the industry median, which may indicate that the stock is fairly valued relative to its peers.
Should We Buy This Stock and Why?
The decision to buy Grasim Industries Ltd stock should be made with caution. While the company has a consistent promoter holding of around 43% with no pledged shares, its debt-to-equity ratio of 1.47 is relatively high, indicating increased financial risk. The company’s ROE has been low at 8.97% over the last 3 years, and its dividend yield is only 0.43%. On the positive side, Grasim Industries Ltd has shown consistent sales growth of 16% over the past 5 years and has a stable operating profit margin (OPM) of around 20%. Investors should weigh the potential benefits of the company’s market position and growth against its high debt levels and low ROE before making an investment decision.
How Is the Industry of This Company Growing?
The data provided does not give a clear indication of the overall growth of the Textiles – Manmade industry. However, we can infer some insights based on Grasim Industries Ltd’s performance:
- Grasim Industries Ltd’s sales growth over the past 5 years has been 16%, indicating a positive trend in the company’s revenue.
- The company’s operating profit margin (OPM) has remained stable at around 20%, suggesting that the industry may have maintained its profitability.
- Grasim Industries Ltd’s market capitalization of ₹1,54,285 crore is significantly higher than its peers, indicating its strong market position within the industry.
To better assess the industry’s growth, additional information on the overall performance of the Textiles – Manmade sector and the growth rates of Grasim Industries Ltd’s competitors would be required.
Recommendation: Given the high debt-to-equity ratio, low ROE, and relatively high P/E ratio, Grasim Industries Ltd receives a CAUTION recommendation. While the company has shown consistent sales growth and has a stable promoter holding, its financial risk profile and low dividend yield may not be attractive to all investors. Potential investors should closely monitor the company’s debt levels, profitability, and growth prospects before making an investment decision.
Risk Factors related to Grasim Industries Ltd and the Textiles – Manmade industry:
Business/Commercial Risks:
- Competition from domestic and international players in the viscose staple fiber (VSF), caustic soda, and specialty chemicals markets.
- Fluctuations in raw material prices, such as wood pulp and energy costs, which may impact the company’s profitability.
- Dependence on the textile industry, which is sensitive to economic cycles and consumer spending patterns.
Regulatory Changes:
- Changes in environmental regulations related to the production and disposal of chemicals used in the manufacturing process.
- Alterations in tax policies, import duties, or export incentives that may affect the company’s cost structure and competitiveness.
Key Risks Associated and Potential Risks of the Industry:
- Technological disruptions and the emergence of alternative materials that may replace VSF or other products manufactured by the company.
- Geopolitical risks, such as trade disputes or protectionist measures, which may impact the global demand and supply dynamics of the industry.
- Sustainability concerns and the increasing focus on eco-friendly materials, which may require significant investments in research and development to adapt to changing consumer preferences.
Risks to Consider Before Investing:
- The company’s high debt-to-equity ratio of 1.47, which may increase financial risk and limit its ability to raise additional funds for growth or to withstand economic downturns.
- The low return on equity (ROE) of 8.97% over the last 3 years, which may indicate inefficient utilization of shareholders’ funds.
Management Quality Assessment:
Based on the information provided, there is no mention of any criminal cases against the promoters or management of Grasim Industries Ltd. However, as an AI language model, I do not have access to a comprehensive database or the internet to verify this information independently. It is always advisable for investors to conduct thorough research on the management’s background and track record before making investment decisions.
Recommendation: Given the high debt-to-equity ratio, low ROE, and relatively high P/E ratio, Grasim Industries Ltd receives a CAUTION recommendation. While the company has shown consistent sales growth and has a stable promoter holding, its financial risk profile and low dividend yield may not be attractive to all investors. Potential investors should closely monitor the company’s debt levels, profitability, and growth prospects, as well as the industry-specific risks mentioned above, before making an investment decision.
How This Company Is Going to Perform Long Term like 6-10 years
Predicting Grasim Industries Ltd’s long-term performance over the next 6-10 years is challenging due to various factors such as industry dynamics, technological advancements, and regulatory changes. However, the company’s strong market position, as evidenced by its market cap of ₹1,54,285 crore, and its consistent sales growth of 16% over the past 5 years, indicate its potential to maintain its leadership in the Textiles – Manmade sector. The company’s operating profit margin (OPM) has remained stable at around 20%, suggesting its ability to manage costs effectively. However, the company’s high debt-to-equity ratio of 1.47 and low return on equity (ROE) of 8.97% over the last 3 years may hinder its long-term growth prospects if not addressed adequately.
How This Company Is Going to Perform Short Term 2-5 months
In the short term of 2-5 months, Grasim Industries Ltd’s performance may be influenced by various factors such as raw material prices, demand fluctuations, and economic conditions. The company’s quarterly sales have shown an increasing trend, with ₹31,965 crore reported in Dec 2023, indicating a positive short-term outlook. The operating profit margin (OPM) has also improved from 20% in Sep 2023 to 22% in Dec 2023, suggesting better cost management. However, the company’s net profit has declined by 39.80% in the latest quarter compared to the previous year, which may concern investors in the short term.
How This Company Is Going to Perform medium Term 2-6 years
Over the medium term of 2-6 years, Grasim Industries Ltd’s performance will depend on its ability to capitalize on growth opportunities, manage its debt levels, and improve its profitability. The company’s 5-year sales growth of 16% and 5-year profit variance of 19.3% indicate its potential to maintain a steady growth trajectory. However, the company’s high debt-to-equity ratio of 1.47 may limit its ability to invest in growth opportunities or withstand economic downturns. The company’s low ROE of 8.97% over the last 3 years also suggests the need for improvement in its asset utilization and profitability. The consistent promoter holding of around 43% with no pledged shares is a positive sign, indicating the management’s confidence in the company’s future prospects.
Recommendation: Based on the provided data and parameters, Grasim Industries Ltd receives a CAUTION recommendation. While the company has shown consistent sales growth and has a stable promoter holding, its high debt-to-equity ratio, low ROE, and relatively high P/E ratio may concern investors. The company’s dividend yield of 0.43% is also low compared to some of its peers. Investors should closely monitor the company’s debt levels, profitability, and growth prospects, as well as the industry-specific risks, before making an investment decision. A cautious approach is recommended until the company demonstrates improvement in its financial metrics and addresses its high debt levels.