Motilal Oswal has reiterated its 'BUY' rating on Grasim Industries with a target price of Rs 3,800, following a strong Q1FY27 performance. While the company achieved a standalone profit turnaround, investors should note potential margin pressures in the coming quarter due to rising costs.
Motilal Oswal has maintained its 'BUY' rating on Grasim Industries, setting a target price of Rs 3,800 per share. This rating comes after the company reported a strong performance in the first quarter of the 2027 financial year, where standalone results showed a notable improvement compared to the same period last year.
The company’s operating profit (EBITDA) on a standalone basis jumped 2.5 times year-on-year to reach Rs 9.5 billion. A significant highlight for the quarter was the return to a standalone net profit of Rs 2.5 billion, marking a sharp recovery from the net loss of Rs 1.2 billion reported in the first quarter of the previous financial year. This performance was supported by efficient use of lower-cost inventory and a reduction in expenses within the company's newer business segments.
Grasim’s newer growth engines, particularly its paint division (Birla Opus), are showing steady progress, with revenue rising 64% year-on-year to Rs 1,661 crore for the quarter. The brokerage firm arrives at its valuation by calculating the worth of Grasim's individual business segments separately. This includes its core Viscose Staple Fibre (VSF) and chemical businesses, as well as its newer paint, B2B e-commerce, and renewable energy ventures.
However, there are specific factors that investors should monitor for the upcoming quarters. Management has indicated a cautious outlook for the second quarter of the 2027 financial year. They expect profit margins to face pressure due to the impact of higher raw material costs and increased spending on advertising to support the expansion of their new businesses.
Additionally, there has been a slight downward adjustment in the company’s earnings estimates for the 2028 financial year. Projections for EBITDA and earnings per share were cut by approximately 4% and 7%, respectively, following the introduction of a new 0.25% royalty levy on standalone revenue.
For investors, the key monitorables moving forward will be how the company manages these rising input costs while continuing to push its paint and e-commerce ventures toward break-even profitability. The cyclical nature of the VSF business also remains an important factor to track, as global demand and pricing trends can directly influence the company’s overall profit margins.