Grasim Industries share price hits fresh 52-week high; is the stock buy-worthy?

Grasim Industries share price rose over 2 per cent to hit its fresh 52-week high of ₹2,021.95 in morning trade on BSE, a day after the company informed the board of directors that the company will meet on Monday, October 16 to consider a fundraising. The stock opened at ₹1,994.95 against the previous close of ₹1,979.50 and rose 2.14 per cent to hit its 52-week high.

"A meeting of the board of directors of Grasim Industries is scheduled to be held on Monday, 16th October 2023, to consider the proposal for raising funds by way of equity shares or other securities through a rights issue, qualified institutions placement (QIP), preferential issue or any other method as may be permitted under the applicable law, subject to such regulatory/statutory approvals as may be required," Grasim said in an exchange filing on Wednesday.

Grasim share price has witnessed decent gains in the last few months. The stock hit its 52-week low of ₹1,528 on March 16, 2023. In about seven months, the stock has gained almost 30 per cent.

The stock traded 1.04 per cent higher at ₹2,000 around 10:50 am on BSE.

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Comfortable valuation

The stock could rise further in the medium term since it still has valuation comfort. The current price-to-earnings (PE) ratio of the stock is near 20 which is well below its average PE of about 25. The price-to-book value (PB) ratio of the stock is also low at 1.6 currently against a median PB of about 2.

Q2 expectations

The September quarter earnings will be a major trigger for the stock. Gradim is expected to report a softer set of numbers for Q2FY24.

According to the estimates of brokerage firm Motilal Oswal Financial Services, revenues of the VSF (viscose staple fibre) and Chemical segments may drop 3 per cent and 16 per cent year-on-year (YoY), respectively. Standalone operating profit margin (OPM) is estimated to contract 4.3pp YoY to 9.8 per cent. Adjusted profit is estimated to decline 37 per cent YoY to ₹650 crore but adjusted profit may be up 83 per cent quarter-on-quarter (QoQ) due to dividend income from UltraTech Cement.

EBITDA for the VSF segment is expected to increase 19 per cent YoY and the OPM is likely to improve 1.9pp YoY to 10.2 per cent. On the other hand, the chemical segment’s EBITDA is expected to decline 43 per cent YoY, and OPM may contract 7.3pp YoY to 15.2 per cent, Motilal Oswal said.

Technical indicators signal a buy

Technical analysts are also positive about the stock for the short term as they highlight key technical indicators indicating the possibility of the stock's upward march.

Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers observed that on a monthly scale, this stock has been in a solid uptrend for the last four to five months.

Patel pointed out that on the indicators front, monthly-scale DMIs are well positioned for further up moves, along with the monthly RSI looking to enter the 70 zone. All key exponential moving averages (i.e., 21–50–100–200 days) are pointing upward, thus supporting the price action.

"One can go long in this counter in the range of ₹1,975–2,025 with a target price of ₹2,300 and a stop loss of ₹1,850 on a daily close basis. The time horizon for this investment could be the next three to four months," said Patel.

Gaurav Bissa, VP at InCred Equities also recommends a buy on the stock as he pointed out Grasim has been one of the most stable large-cap names in recent times.

"The stock witnessed an ascending triangle breakout on the weekly charts which pushed it towards ₹2,000 levels. It then witnessed a retracement and retested the breakout on the weekly charts which has strong support provided by Williams Alligator, Ichimoku Kijun as well 21EMA (exponential moving average) indicators implying ₹1,800-1,850 will act as a strong demand zone going forward. RSI is currently trading around 67 which will give a strong push once it crosses 71 on the weekly timeframe. Investors can buy the stock for ₹2,100-2,200 levels with a stop loss at ₹1,830," said Bissa.

Vaishali Parekh, Vice President - Technical Research at Prabhudas Lilladher said the stock has shown a series of positive candles in the last three sessions to indicate a breakout above the ₹1,988 level. Entering a new territory has improved the bias to indicate a further rise in the coming days.

"The near-term target expected is at around ₹2,130 and thereafter further strength sustaining can carry it to ₹2,280. The near-term support from current levels would be at ₹1,920 and major support would be lying near ₹1,870 below which the trend can turn weak to some extent," said Parekh.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.