Raising capital through the public issue of shares is what we all know well as the Initial Public Offering (IPO) process. But, as the name suggests, IPO refers to the initial offering of shares.
So, how do companies manage their future capital requirements? They invest profits back into the business, but what if that is insufficient? That is where the process of raising debts, announcing a rights issue and other ways come in.
Grasim Industries has recently announced its right issue. This article tells you everything about it.
What is a rights issue?
A rights issue is a corporate action through which firms raise further capital from current shareholders.
Rights issues are offers made to existing shareholders to buy shares at a discounted price compared to the current market price. Issuing shares through this mode is an alternative to raising capital through debts. Companies resort to this option when they need additional capital for operations but do not want to rely on loans. Some companies also use the rights issue option when they are not eligible for debt.
Who is Grasim Industries?
Founded in 1947, Grasim Industries is a part of the Aditya Birla Group, headed by the chairman, Mr Kumar Mangalam Birla. The company began operating as a textile manufacturer, and in the 76 years, it has ventured into various other sectors.
Being one of the top-ranked publicly listed companies, Grasim Industries is also a leading producer of Viscose, diversified chemicals and various fabrics. The firm is now venturing into paints with the brand Birla Opus to manufacture decorative paints nationwide. Its subsidiaries have a strong footprint in varied sectors like financial services and cement manufacturing.
Grasim Industries financials
According to Grasim Industries annual report, the company’s financials for FY 2023 are as follows:
|Amount or Value
|Revenue from operations
|Net profit for the year
|Net debt to equity ratio
|Earnings per share
|₹32.31 per share
|Interest coverage ratio
Grasim Industries dividend was ₹10 per share for FY 2023. The company had over 2,40,000 shareholders and more than 24,000 employees in the financial year. As per Grasim Industries’ results, current liabilities stand at ₹8,277 crores, against current assets of ₹7,644 crores.
|Shareholding pattern as of 31st March 2023
|Promoter and promoter group
|Mutual funds and Alternative Investment Funds (AIF)
|Banks, financial institutions, NBFCs and insurance companies
|Foreign Institutional Investors (FIIs)
|Global Depository Receipts (GDRs)
|NRIs / OCBs / Foreign nationals
|Central government / State government
|Bodies corporate / trust / clearing member, etc.
|Qualified Institutional Buyers (QIBs)
|Shares held by employee trust
Objective of Grasim Industries rights issue
On 16th October 2023, Grasim Industries announced the rights issue of its shares. The company is now focussing on its largest capital expenditure plan and raised a debt fund for the same. The rights issue is an effort in the same direction, too.
The objective of the CAPEX plan is to become the second largest player in the decorative paints market and continue to hold its market leader position in the viscose and chemicals sector.
Grasim aims to use ₹4,000 crores of the rights issue towards its capital expenditure plan, repaying existing loans and for other general purposes of the firm.
Details of rights issue
- Rights issue value: ₹4,000 crores
- Rights issue date: 17 January 2024 to 29 January 2024
- Rights issue size: 2.2 crore shares to existing shareholders
- Rights issue ratio: 6:179 (Six shares for every 179 shares held)
- Current share price: ₹2,079 as of 05 January 2023
- Rights issue share price: ₹1,812 per share (Over 12% discount per share)
- Face value per share: ₹2
- Premium per share: ₹1,810 per share (₹1,812 – ₹2)
- Record date: 10 January 2024 (All shareholders of Grasim as of 10th January 2024 will be eligible for the rights issue.)
Benefits of investing in Grasim’s rights issue
- The company hit a milestone this year by reaching the trillion rupee club. With an annual growth rate of 16%, the company’s consolidated revenue went above ₹1 trillion in FY 2023.
- The viscose business wing witnessed a tremendous growth of 18%, with the highest sales volume of 7,11,000 MT. The growth was attributed to a rise in demand for eco-friendly fibres.
- The chemical business of Grasim also saw a strong year. The revenue grew 32% to reach ₹10,422 crores, mainly due to the increased demand for chlor-alkali.
- The textile business was no exception to Grasim’s growth. It saw the best annual revenue so far with ₹2,293 crores.
- Sustainability is the deal of the day. From vehicles to clothes, consumers are moving towards products offering eco-friendly and sustainable features. Grasim, too, has included sustainability in its strategies and aims to be Net Zero by 2050.
- The company recognises the growth of technology across all industries. The firm is focussing on adapting advanced technology, digitised solutions and artificial intelligence across its products to enhance customer experience.
- The company has an AAA/stable rating by CRISIL.
What should investors watch out for?
- The company heavily relies on natural substances like water and coal. The exhaustible nature of coal can impact the cost of manufacturing Grasim’s products as the quantity of coal keeps reducing.
- Grasim uses heavy machinery and high amounts of power. Approximately 70% of the company’s variable cost goes into incurring the required power for manufacturing. The non-availability of sufficient power may affect the company’s operations.
- Since the company has multiple industrial and manufacturing units, Grasim’s employees are subject to various levels of health hazards. This can impact the company’s goodwill negatively.
- Heavy reliance on technology causes an inherent risk of system breakdown and data leakages. The company’s confidential data and consumer information are subject to the risk of cyber-attacks.
- The company also expects the prices of its products to be affected by global price volatility of raw materials and foreign exchange rates.
Grasim Industries Limited is one of the industry leaders in its sector. The company has shown steady growth in revenues across all its business wings. Though it is exposed to a variety of risks, it has a tough mitigation plan in place. Grasim also has strategies to continue holding its top ranking in the industry.