Motilal Oswal maintains ‘Buy’ on Grasim for target of Rs 2813

MUMBAI:Motilal Oswal has maintained its ���Buy��� recommendation on Grasim. The brokerage sees the stock hit target price of Rs 2813 in next 12 months.

Grasim's 2QFY10 standalone results are above estimates, driven by strong performance in the core businesses of cement and viscose staple fiber (VSF). EBITDA margins were 34.1% (v/s our estimate of 29.9%) and PAT was Rs 6.74 billion (v/s our estimate of Rs 5.5 billion). The results are not comparable due to divestment of the sponge iron business from May 2009.

���After the announcement of the de-merger of the cement business to UltraTech, Grasim's stock declined 19% and has underperformed the Sensex by 11.6% since October 1. This indicates investors' negative view of the restructuring scheme. At current prices Grasim is valued at an implied holding company discount of 50%.

After the correction, the stock is quoting at very attractive valuations of 6.8x FY11E consolidated EPS, 2.8x FY11E EV/EBITDA, 1.2x FY11E P/BV and US$45/ton (pre-demerger). Maintain Buy with target price of Rs2,813 (SOTP based, assigning 33% discount to peers' valuation for the cement business),��� the report said.