Grasim Industries gains as Street cheers Rs 4,000-crore fundraise plan

The fund-raising plan comes after after Grasim Industries announced its foray into the paints business. Analysts said the funds would also help the management in arresting debt ratios to more comfortable levels

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Grasim Industries was trading 2.4 percent higher on October 17 morning, a day after the Aditya Birla Group company said it would raise up to Rs 4,000 crore through a rights issue, a move analysts say would also help improve debt ratios.

In an exchange filing on October 16, Grasim Industries said the proposed fundraise is subject to regulatory approvals. The record date of rights issue shall be determined in due course.

Analysts said that the promoters group has committed to fully subscribe to its entitlements. Promoters extended to cover any unsubscribed portion, too, if applicable.

The fundraise comes after Grasim Industries announced plans to get into the paints business.

ALSO READ: Spending on factories doesn’t guarantee a big market share: Saurabh Mukherjea’s Marcellus on Grasim’s entry

The company intends to invest around Rs 10,000 crore to set up its paint business, rivaling market leader Asian Paints, which has half of India’s market share.

In the June quarter, the company invested around Rs 3,640 crore. The management has outlined a capex of Rs 5,700 crore for FY24, which includes Rs 4,280 crore for the paints business.

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Brokerages view

Analysts at Morgan Stanley have an “overweight” call on the counter, with a target price of Rs 1,985.

The global brokerage firm said the Rs 4,000-crore rights issue would imply 3.1 percent dilution in the current market.

“The management highlighted that the fundraise would be used for ongoing capex and repayment of existing debt. This fundraise announcement reaffirms management’s focus on organic growth,” it said.

ALSO READ: Cash Market | Grasim shows a classic breakout-pullback pattern

It would help the management to arrest debt ratios to more comfortable levels.

As of June 2023, net debt of Grasim Industries stood at Rs 3,500 crore.

Motilal Oswal expects the fundaise to be earnings accretive, which would eventually result in earnings per share (EPS) increase of 0.6/0.9 percent for FY24/25E.

“Post this equity issue, we expect net debt to be 66 percent/47 percent lower than our earlier estimates in FY24/25E. Net debt/Ebitda will be at 1.5 times (x) in FY25E versus our earlier estimate of 2.7x,” the brokerage firm said.

It reiterated a “buy” call on the counter, with a target price of Rs 2,380 a share.

At 10 am, the stock was trading at Rs 1,980.80 on BSE, up 0.45 percent from the previous close.

In the past three months, the textile-to-cement manufacturer has surged 10 percent against a 0.6 percent decline in the Sensex. The stock touched its 52-week high of Rs 2,021 on October 12, 2023.

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