VSF Margin Recovery on the Horizon

Motilal Oswal analysts see Grasim Industries poised for significant long-term gains, reiterating a 'Buy' rating with a target price of ₹3,600. The brokerage cited the company's diversified growth strategy, underpinned by its Viscose Staple Fibre (VSF), specialty chemicals, and decorative paints businesses as key drivers. The VSF segment, a major revenue contributor, is entering a recovery phase, while the chemicals division offers stability and the paints business is rapidly expanding.

VSF Margin Recovery on the Horizon

Grasim, a global leader in VSF production, operates substantial capacity across India. A new plant in Karnataka is slated to commence operations by mid-FY27, further boosting output. The company also produces specialty fibres like Modal and Lyocell, which accounted for approximately 24 per cent of VSF volumes in the second quarter of FY26. After a period of stagnant prices pressured by weak Chinese demand, VSF prices have seen a modest rebound. This, combined with stable pulp costs, is projected to drive profit improvements in the latter half of FY26, with estimated Ebitda per kilogramme rising to ₹18.3 from ₹15.3 in the first half. Motilal Oswal forecasts VSF revenue and Ebitda to grow at compound annual growth rates of approximately 5 per cent and 17 per cent, respectively, between FY26 and FY28, with margins expected to reach 11 per cent by FY28.

Chemicals: Stable Growth Anchor

The specialty chemicals segment, anchored by India's largest chlor-alkali and epoxy resin production, continues to provide a steady growth trajectory. Grasim's substantial caustic soda and specialty chemicals capacity positions it to maintain market leadership despite global oversupply. Strategic investments, including new ECH and CPVC resin plants, aim to enhance chlorine integration to around 70 per cent by FY28, improving efficiency and profitability. Motilal Oswal projects revenue and Ebitda CAGRs of about 12 per cent and 13 per cent, respectively, for the chemical segment over FY26-28, with stable operating margins around 15 per cent.

Birla Opus Reshaping Paint Market

Grasim's decorative paints business, Birla Opus, is emerging as a formidable competitor in India's paint industry, historically dominated by established players. Following the commissioning of its large Kharagpur plant, Birla Opus has rapidly scaled its operations. The business has expanded its distribution network to over 10,000 towns and 50,000 dealers, offering a wide product range. Significant investments in brand building and a focus on developing a professional ecosystem for painters are underway. Motilal Oswal acknowledges the focus on scale and market share rather than immediate profitability, driven by strong long-term demand prospects from rising incomes and urbanisation.

Valuation and Outlook

Analysts anticipate that the combined Ebitda of the VSF and chemical segments will grow at approximately 13 per cent CAGR from FY26 to FY28. The brokerage's sum-of-the-parts (SoTP) valuation, which assigns specific multiples and discounts to subsidiaries and standalone businesses, supports the ₹3,600 target price. With multiple growth catalysts across its diverse portfolio, Grasim is viewed as a well-positioned company for sustained long-term value creation.