Grasim

Grasim Textiles ltd.

1. Business and Value Chain DescriptionGrasim Bhiwani Textiles Ltd is a subsidiary of Grasim Industries Ltd having strong presence in manufacturing of Polyester Viscose fabric catering the market under brands GRASIM & GRAVIERA as also exporting its fabric to various reputed brands. The company has its manufacturing facility in Bhiwani Haryana and its Marketing & Sales Office at New Delhi. The company is spread across the geography through a large network of dealers, agents and retail outlets. The company utilizes strong manufacturing facilities comprising of Fibre Dying, Yarn Spinning, Weaving, Processing and Folding with state-of-the-art machines, processes and professional environment. The company also has strong presence in International market catering to the fabric need of International brands. The company has strong Design and Development team which conceptualizes and develops designs as per fashion standards and market needs. The company also has its product range of RMG Readymade Garments with exclusive design and qualities.Key Sector Data

Market Cap (Rs Crore)16133

Market Cap (USD Million)2667

P/E24.3

P/BV1.0

Debt/Equity1.9

ROA (%)1.1

ROE (%)4.0

EV/Sales0.9

EV/EBITDA5.9

Industry India's Clothing industry is one of the mainstays of the national economy. It accounts for 14% of industrial production, which is 4% of GDP; employs 45 million people and accounts for nearly 11 % share of the country's total exports basket. India is the second largest producer of textiles and garments after China and second largest producer of cotton in the world. The apparel market accounts for 6% of India's consumption expenditure and is expected to touch USD 225 billion (aroundRs.1,40,000 crore today) by 2020, a fourfold increase in the space of a decade, according to a 2012Boston Consulting Group (BCG)report.As per the Ministry of Textiles, India's Clothing Industry is estimated at around USD 80 billion of which domestic Textile and Clothing Industry is expected to be round USD 55 Billion. Major companies within the sector comprises of names such as Alok Industries, Mandhana industries, Arvind, Raymond, SKumars Nation and Welspun India. Various government schemes for Textiles today are running which includes Technology Fund Upgradation Scheme (TUF), Scheme for integrated Textile Parks (SITP). Group Workshed Scheme (GWS) Group Insurance Scheme for development of Power loom Sector Integrated Scheme for Power loom Cluster Development, Marketing development programme for Power loom Sector etc. Dominated by unorganized players and traditional way of doing business Indian Textile industry is largely small and fragmented and organized players constitute only 5% of the industry. Smaller players often are badly affected due to sudden drop or increase in raw material prices, sudden depreciation/appreciation of rupee, slowdown in major export markets, uncertain and uneven power supply issues, labor issues, higher interest costs etc. Traditionally, textiles was of more of number of looms and processor houses and even today, the scattered looms and process house continue to dominate. About 60% of the industry is dominated by the traditional power looms, 24% are the mills, about 11% are the handlooms and rest are Hosiery related activities. Also because of TUF incentive schemes, often the players in the market go for huge capacity expansion, as the interest on capex after TUF subsidy comes to only around 5%. Hence lot of capacities are being created and in a fragmented and fragile manner. The industry players are often small and thence are not able to cope up with the volatility in the raw material and forex prices, thus, most of the players either go out of business or operate depending upon the circumstances. As per the Banking Survey, Textiles contribute one of the largest NPA portfolios of most of the banks, because of the above-mentioned reasons and the manner in which the industry operates.

Indian Clothing StatisticsIndia's Cloth production has grown by a CAGR of 5% in the past 10 years. Total Cloth production in India in FY'13 stood at 61966 Million Sq meter, up by about 4% YoY. The rise has been largely attributable to higher exports, while uncertain domestic market conditions, unorganized labor laws and delay in implementing various policies etc continue to hurt growth. The growth in FY'13 is on the top of a 2% lower production in FY'12 to 59605 Million Sq meter. For the period April-Nov 2013, the cloth production grew by 3% to 42077 Million Sq Meter. Financial Year-wise, Variety-wise Production of Cloth

Financial YearCotton ClothBlended Cloth100% Non Cotton ClothTotal Qty.Var %

Qty.Var %% ShareQty.Var %% ShareQty.Var %% Share

2011-201230570-2%51%84684%14%20567-5%35%59605-2%

2012-20133387111%55%928310%15%18812-9%30%619664%

April-Feb 20133094011%54%849710%15%17482-8%31%569184%

April-Feb 2014326666%56%92269%16%16429-6%28%583222%

Data Source: Textile Commissioner, Mumbai, (Qty. in Million Sq. Mtrs. )

Cotton Cloth production whose, total share is about 55% of total production, grew by 11% in FY'13 to 33871 Million sq meter. In April-Feb 2014, the production grew by 6% to 32666 Million Sq Meter. Blended Cloth production, whose total share is about 15% of total production, grew by 10% in FY'13, and also grew by 9% growth in April-Feb 2014 peirod to 9226 Million Sq Meter. Non-Cotton and Non Blended Cloth, whose share is 30% of total production, de grew by 9% to 18812 Million Sq Meter in FY'13, and degrew further by 6% to 16429 Million Sq Meter in April-Feb 2014 period. Total cloth production during April-Feb 2014 period stood at 58322 Million Sq Meter, up by 2% YoY.

2. Cash Flow estimation and Growth pattern analysis CompanyCAGRAGR

Raymond83%8%

Vardhaman127%13%

Century130%13%

Bombay105%10%

Grasim123%18%

If we see Grasim textiles since its inception in 2007 the company has grown by CAGR of 123% i.e. is 18 % annually which is the highest among all its competitor chosen in this case. Further also we expect the company to grow due to following reasons-Higher per capita income of the masses will lead to higher disposable income and hence higher spending on clothing and focus more on organized and branded products. Indian Retail clothing market is more organized and organized players now comprise of 40% of total retailing in India. Increase in nuclear families and favourable demographic profiles also lead to higher spending and consumption of cloth.However industry continues to do with challenges in form of low productivity, lack of advanced manufacturing technologies, lack of foreign investments, supply chain bottlenecks, lack of economies of scale, labour related challenges, issues arising due to a fragmented industry and weak brand positioning, government ad hoc decisions etc. Increased domestic competition together with competition from global players and high initial investment cost for state of the art production facilities are other emerging challenges being faced by Indian textile industry.

Industry IndicatorsYearLatest2014201320122011

No.Of Companies64424

Key Ratios

Debt-Equity Ratio0.220.190.180.110.21

Long Term Debt-Equity Ratio0.210.190.180.10.16

Current Ratio1.511.581.61.161.05

Turnover Ratios

Fixed Assets1.171.151.391.511.44

Inventory6.236.298.049.2810.32

Debtors9.129.299.999.779.91

Interest Cover Ratio8.9812.5213.3716.0617.93

PBIDTM (%)17.6518.3321.3227.9233.08

PBITM (%)13.5114.1717.6624.5829.13

PBDTM (%)16.1517.22026.3931.46

CPM (%)14.7215.7516.7620.4524.27

APATM (%)10.5711.5813.117.1120.31

ROCE (%)8.83911.8119.2621.99

RONW (%)8.458.810.3214.8818.49

Also for FY'15, with lower forex losses and interest costs, the PAT growth is expected to be higher by 35.7% YoY on a 12.8% net sales growth.

Mar-12Mar-13Mar-14

Cash At End0.080.090.08

Cash flow From Operations25.0217.2939.78

Capital Expenditure00.20.15

Free Cash Flow25.0217.0939.63

Net Income6.29.0418.14

Retained Earnings6.519.1327.14

From the above table and graph it can be seen that for Grasim textiles there is huge difference in net income and cash flow which shows majority of sale is on credit, the company should try to reduce this gap.

3. Cost of Capital and PerformanceGrasimRaymondCenturyVardhamanBombay Dyeing

Share holder fund97.95171.551747.42848.321463.55

Debt57.44119.475677.853227.11435.25

Beta1.110.91.530.561.65

ke17.99%16.05%21.87%12.90%22.98%

kd5.40%8.80%5.40%4.90%9.40%

WACC13.33%13.07%9.28%8.65%16.26%

For the above calculation we have taken risk free return to be 7.72% and market risk premium to be 9.25%.

4. Working Capital Management and EfficiencyWorking Capital is the outlay needed to carry out the day-to-day operations of the company once the broad fixed asset are in place. Thus, companies have to arrange for funds in respect of cash balance required to carry on operations, the stock of inventory and the amounts locked up because customer take some time to pay after the sales has been made.Some of the key Indicators are as follows-1) Number of Days of InventoryIt shows the inventory level in terms of the number of days of sales

Number Of Days of Inventory

Mar-11Mar-12Mar-13Mar-14

Bombay20326120399

Century83837472

Vardhaman130130122159

Raymond96114135107

Grasim58665874

2. Days Sales OutstandingWith this ratio companies calculate the number of days of sale that is represented by the receivables that are to be collected, with this we get the number of days of sales that are waiting to be collected.Days Sales Outstanding


Bombay20325420198

Century82827371

Vardhaman161122131132

Raymond10713711596

Grasim74576657

3. Inventory Turnover ratioA ratio showing how many times a company's inventory is sold and replaced over a period. A low turnover is usually a bad sign because products tend to deteriorate as they sit in a warehouse.Inventory Turnover Ratio


Bombay1.81.41.83.7

Century4.44.44.95.1

Vardhaman2.82.832.3

Raymond3.83.22.73.4

Grasim6.35.56.34.9

Analysis-If we see on all above three Parameters Company is doing far better than its competitors. It can further improve by lowering its current inventory level.The companys debt ratio vis-a-vis the market average showcases better leverage against debt than its immediate competitors in the previous financial year. Additionally, the low debt/equity ratio showcases that the company carries very less financial risk as the majority of its investment is carried out through equity rather than debt. The company thus has low financial risk.

The companys competitive advantage lies in its business interests, with VSF production by a subsidiary of the parent company acting as a stable source for procurement of raw material required for textiles improving cost competitiveness. Vertical integration is another advantage lowering overall costs of production. Additionally, the company should look at improving its production facilities to expand in the face of growing competition from cotton textiles based companies from China and other neighbouring countries. Investment in a plant to expand operations should be looked into in the face of growing difficulties in cotton production and increasing popularity of cellulose fiber based textiles. The company continues to grow on the back of higher volume in the over the counter segment in the Indian market and increased demand in the export markets. Its operating profit at ` 36.7 crore improved by 17% with higher margins in export markets. Net profit almost doubled from ` 9.1 crore in the previous year to ` 18.1 crore.

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Grasim