In July 2019, after Vodafone Idea posted a loss of 48 billion, the stock plunged, but what surprised many was that Grasim Industries also nosedived, as sentiment around Aditya Birla Group companies turned sour. As investors hope for revival in Vodafone Idea’s fortunes after the rise in tariffs, Grasim, which holds 11.6% in Vodafone Idea has also seen some respite.
From a 52-week low of 635 in October, the stock currently trades at 760. This rally could also have been prompted by promoter entities buying shares worth 435 million. This acquisition was executed by two entities of Kumar Mangalam Birla — Pilani Investment and Industries Corporation and IGH Holdings — over three tranches on November 21 and December 31. Meanwhile, another promoter entity ECE Industries sold shares worth 258 million in November 2019.
After the latest acquisition, Pilani Investment holds 3.75% in Grasim and overall promoter holding stands at 40.18%. The holding company, which bought Grasim shares worth 327 million in December, has been selling and buying stakes in other AB Group companies as well. In the last week of 2019, it sold shares worth #1.26 billion of Ultratech Cement, but bought shares worth 498 million of Vodafone Idea in July and August.
Even as the promoter is increasing his stake, analysts remain cautious. Net sales and operating profit declined in H1FY20 and weak performance is expected to continue in the second half as well. “We reduce our FY20/FY21 estimates by 16% in light of weaker realisations of Viscose Staple Fibre (VSF) and the chemical business,” state analysts at Motilal Oswal Securities in a November 2019 report. They also expect “EPS to register a decline in CAGR of 21% over FY19-21”. They attribute this outlook to softening of VSF prices and weakness in chemical demand.
Foreign investors also seem concerned, as they have cut their stake from 20% in March 2019 to 16.97% in September 2019. However, government of Singapore, the largest foreign investor, has increased its holding from 1.18% to 1.36%. Mutual funds continue to be bullish, having increased their stake from 7.61% to 9.09% over the same period. SBI MF, HDFC MF and Kotak MF have upped their holding from 0.81%, 0.06% and 0.58% to 0.92%, 0.57% and 0.65%, respectively.