Grasim Ind shares rise 2% on ₹4,000 cr rights issue plan

Shares of Grasim Industries rose over 2% in opening trade on Tuesday after the Aditya Birla Group's flagship company unveiled a plan to raise capital up to ₹4,000 crore by way of a rights issue. The company intends to use the capital to establish Grasim as India’s second largest decorative paints player as well as to repay existing borrowings. Grasim had previously committed an investment of ₹10,000 crore towards setting up the paints business.

Boosted by the fundraising plan, Grasim Industries shares opened higher, snapping two sessions losing streak. The stock opened at ₹2,003.80, up 1.6% against the previous closing price of ₹1,972 on the BSE. In the first hour of trade so far, the counter rose 2.4% to hit a high of ₹2,020, while the market capitalisation increased to ₹1.3 lakh crore.

At the current price level, Grasim Industries shares trade near its 52-week high of ₹2,021.95 touched on December 12, 2022. The largecap stock has risen over 32% after hitting its 52-week low of ₹1,528 on March 16, 2023.

In a post market hour release on Monday, Grasim Industries said that its board “approved the raising of funds not exceeding ₹4,000 crore by way of a rights issue to the eligible equity shareholders as on the record date”.

“The proposed rights issuance by Grasim aims to fund the ongoing capital expenditure plan, repay existing borrowings, and support general corporate purposes,” it said in the exchange filing.

As per the exchange filing, Grasim is implementing its “highest ever capital expenditure plan”. The company has raised debt to part fund the on-going capital expenditure plan and the funds raised by this issue will also be largely used towards growth capex. In FY23, Grasim executed its largest ever capital expenditure (in standalone business) investing ₹4,307 crore including ₹1,979 Crore toward the paints business.

“The capital outlay for the company to establish itself as India’s second largest decorative paints player is on track. Furthermore, the company is committed to sustaining market leadership in its core businesses Viscose and Chemicals (at standalone level). The rating agencies continue to reaffirm Grasim’s ‘AAA’ ratings,” the filing noted.

 “The rights issue enables existing shareholders to participate in Grasim’s growth journey. The Promoters and Promoter Group have confirmed their participation. They will fully subscribe to their rights entitlement and also to the unsubscribed portion, if any, demonstrating their deep conviction in Grasim’s growth prospects,” it added.

The company further stated that its board or a duly constituted committee of the board would decide the terms and conditions of the rights issue and will be subject to applicable laws and regulatory approvals. The company intends to complete the issue at the earliest, subject to market conditions and other factors, including the receipt of any regulatory approvals, it said.

In August this year, the group’s chairman Kumar Mangalam Birla at the 76th Annual General Meeting of the company said that Grasim aims to be a strong number two player in the decorative paints industry.

The project work is progressing as per plans at all the six sites, and commissioning of plants will start in phases from Q4 FY24. The state-of-the-art R&D facility is fully operational. Addressing a shareholder question, he also said that “We have every reason to believe that we will be successful in the paints industry.”

Last month, Grasim unveiled the brand name of its paints business, ‘Birla Opus’, which is scheduled to be launched by the March quarter of the current fiscal (Q4 FY24). Ahead of the launch, Grasim has successfully piloted the painting services in key metros and introduced a range of imported wood finishes. A R&D facility has already been set up in Maharashtra.

The company’s manufacturing plants located in Haryana, Punjab, Tamil Nadu, Karnataka, Maharashtra, and West Bengal, will have a total capacity of 1,332 million litres per annum (MLPA) and will serve demand centres across the country.

The current estimated value of India’s decorative paints industry is ₹70,000 Crore. The paints industry is witnessing double digit growth year-on-year driven by rising consumer aspirations and the government’s push towards ‘Housing for All’.

DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.