Grasim Industries, the flagship company of the Aditya Birla Group and the leading viscose staple fiber player, reported its Q2 FY25 earnings on November 14, 2024 in which the performance trends were mixed. Though the company experienced a poor profit to the financial year, revenue had an increased, financial year on financial year.
This article focuses on Grasim’s performance review, stock price, technical analysis and buy/sell/hold recommendation.
Grasim Industries closed at Rs 2,523.95 on November 14, 2024, gaining 0.84% for the day. The stock traded within the day’s range of Rs 2,490.05 to Rs 2,539.00. With a 52-week high of Rs 2,877.75 and a low of Rs 1,932.67, the stock has shown strong year-to-date (YTD) returns of 19.16%, outperforming the S&P BSE SENSEX’s 7.39%.
Over a one-year period Grasim has delivered a return of 31.88%. This has reflected solid gains despite recent challenges in its financial performance.
Grasim reported a 66.5% decline in consolidated net profit, posting Rs 390 crore compared to Rs 1,164 crore in the same period last year. Despite this, revenue from operations rose 11% YoY to Rs 33,563 crore.
EBITDA: Dropped 10% YoY to Rs 4,042 crore due to decreased profitability in the cement segment and investments in its paints business under the brand ‘Birla Opus.’
Profit Margin: Fell to 3.93%, significantly lower than the previous year’s margin, impacted by rising interest and depreciation expenses tied to its building materials and renewables ventures.
EPS: Declined by 62.93% YoY to Rs 6.54, dampening investor sentiment.
Grasim’s balance sheet reveals total cash reserves of Rs 221.22 billion and a high debt-to-equity ratio of 100.10%, reflecting the capital-intensive nature of its ongoing projects.
Grasim's Q2 results reflect a mixed bag for investors. Revenue growth was bolstered by diversification into consumer-facing sectors, including its paints and building materials businesses. However, these initiatives have yet to offset the reduced profitability in the cement segment, which continues to face margin pressures.
Management emphasized that the financial performance aligns with the company’s long-term strategy. The initial costs in the paints segment, coupled with depreciation from new investments, weighed heavily on net profit this quarter.
In the year 2024, Grasim Industries has seen a bullish momentum and returned 19.16% YTD returns. The stock price moved to a peak of Rs 2,877 in the week of July and later retraced. But it has been held up at Rs 2,500 levels.
This support zone is bolstered by two key factors:
1. Horizontal Support: Rs 2,500 aligns with a historical support level, where buying interest has consistently emerged.
2. Ascending Trendline: The stock remains supported by a rising trendline, which has provided consistent upward momentum over the past year.
The technical setup suggests that Grasim is likely to bounce back from this area, continuing its bullish trajectory. If the stock sustains its upward movement, the next immediate target would be the Rs 2,877 resistance zone, representing the recent high.
Investors should monitor for confirmation signals, such as increased volume and positive RSI divergence, to validate the continuation of the bullish trend. Conversely, a breakdown below Rs 2,500 could signal a deeper correction.
Grasim’s future hinges on its ability to translate investments in its paints and building materials businesses into profitability. Among eight analysts covering the stock:
1 analyst recommends a Sell.
3 analysts suggest holding the stock.
4 analysts advocate for a Strong Buy, citing long-term growth potential and diversification.
For long-term investors, Grasim offers growth opportunities through its strategic ventures, such as renewable energy and consumer-facing paints. However, short-term challenges, including profitability concerns and rising expenses, warrant caution.
Grasim Industries presents a dichotomy: solid revenue growth driven by diversification and investments but weakened by declining profitability and rising expenses. Investors should weigh these factors carefully.
Buy: For long-term investors seeking exposure to a diversified conglomerate with strong revenue growth potential.
Hold: If already invested, waiting for stabilization in profitability may yield better returns.
Sell: Short-term investors facing concerns over declining EPS and profitability may consider exiting at current levels.
In conclusion, Grasim remains a strong long-term play, but short-term volatility and financial pressures may pose challenges. A strategic approach, aligned with individual investment goals, is recommended.