Grasim Industries gains over 2% on fundraising plan via the rights issue

Shares of Grasim Industries in early morning trade on Tuesday (October 17) gained over 2% to day’s high of Rs 2020 after the company’s board on Monday (October 16) approved fundraising via the rights issue. The stock on Monday (October 16) closed marginally lower by 0.55 per cent at Rs 1972 apiece on the BSE.

Through the rights issue, Grasim aims to mobilise a sum of Rs 4000 crore. “This is to inform you that the Board of Directors of the company at its meeting held today i.e. 16th October 2023 inter-alia approved the raising of funds by way of issue of equity shares of face value of Rs. 2 each through Rights issue for an amount not exceeding Rs. 4,000 crore to the eligible equity shareholders of the company as on the record date,” said the company in its regulatory filing with the exchanges.

In the rights issue, fresh capital is raised by issuing shares at a special pre-determined price by a company to its current shareholders in proportion to their holdings. 

The proposed rights issuance by the cement major aims to fund the ongoing capital expenditure plan, repay existing borrowings, and support general corporate purposes.  

Grasim Industries is implementing its highest-ever capex plan. The company has increased its debt to partly finance the ongoing capex plan. Further, the funds mopped up through the rights issue will be deployed towards growth capex. 

“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,” said the company’s release.

The promoters and promoter group will fully subscribe to their rights entitlement (RE) and also to the unsubscribed portion, if any, demonstrating their strong confidence in the company’s growth prospects.

Brokerage’s view on Grasim Industries

Morgan Stanley: The global brokerage maintains an overweight call on Grasim Industries with a target price of Rs 1985. Morgan Stanley believes the announcement of Rs 4000 crore by the company reaffirms the management’s focus on organic growth.

Citi: The brokerage is bullish on the counter and has reiterated its buy rating with a target of Rs 2250, implying potential gains of 14 per cent from the last closing price of Rs 1972. The brokerage is constructive on the company’s unit Ultratech Cement (ULTC). Further it maintains that the holding company discount should narrow as the stock starts discounting commissioning of the first paints plant.