Grasim announces rights issue of Rs 4,000 crore

Grasim Industries , a part of the Aditya Birla Group, is set to launch a rights issue amounting to Rs 4,000 crore. The subscription period is scheduled to commence on January 17, 2024, and conclude on January 29, 2024. The company intends to issue approximately 2.2 crore shares, resulting in a post-issue total of 68 crore outstanding shares.

Shareholders will have the opportunity to acquire six shares for every 179 shares they currently hold. The issue price is set at Rs 1,812 per share, a discount of approximately 12.4 per cent from the closing price of the stock on January 4, 2024.

Notably, the promoters will also be participating in the rights issue.

Rationale behind the right issue

The proceeds will be primarily used for deleveraging. Around Rs 3,000 crore will be used for debt repayments and prepayments. The remaining will go towards general corporate purposes.

What does Grasim Do

Grasim is involved in a diverse array of businesses, including the manufacturing of viscose (fibre), chlor-alkali, speciality chemicals and textiles.In addition to these core operations, the company extends its presence into sectors such as cement, financial services, and apparel through its diverse subsidiaries. For example, it is a promoter of Ultratech Cement , Aditya Birla Fashion, etc.

Here's the revenue breakdown of the conglomerate (for FY23)

• Viscose - 12.7 per cent
  
• Chemicals - 8.7 per cent
  
• Cement - 53.0 per cent
  
• Financial services - 22.9 per cent
  
• Others - 2.7 per cent

Investors' corner

Prospective investors should be aware that as of September 2023, Grasim Industries reported a consolidated total debt of Rs 1,20,068 crore. On a standalone basis, the company holds a debt of approximately Rs 8,078 crore.

Hence, the impact of the proceeds depends on how the management plans to use it. On a standalone basis, the proceeds may significantly improve Grasim Industries' balance sheet. However, the raised capital will not be enough to have any material impact on the consolidated balance sheet.

Additionally, it's important to note that the company's management has outlined a capital expenditure (capex) plan amounting to Rs 10,000 crore for its paints segment. But, the management has not disclosed how it plans to fund the capex. If it takes the debt route, it may further degrade its balance sheet.

Also read: Things you must know before subscribing to a rights issue