GRASIM TEXTILES LTD.

Group 10
Section C

1. Business and Value Chain Description

Grasim 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)

1613
3

Market Cap (USD

Million)

2667

P/E

24.3

P/BV

1.0

Debt/Equity

1.9

ROA (%)

1.1

ROE (%)

4.0

EV/Sales

0.9

EV/EBITDA

5.9

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 (around Rs.1,40,000 crore today) by 2020, a fourfold increase in the
space of a decade, according to a 2012 Boston 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 Statistics

India'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
Year

Cotton Cloth

100% Non Cotton

Cloth

Blended Cloth

Qty.

Var %

%
Qty.
Share

Var %

%
Qty.
Share

20112012

3057
0

-2%

51%

8468

4%

14%

20122013

3387
1

11%

55%

9283

10%

April-Feb
2013

3094
0

11%

54%

8497

April-Feb
2014

3266
6

6%

56%

9226

Total
Qty.

Var %

Var %

%
Share

2056
7

-5%

35%

59605 -2%

15%

1881
2

-9%

30%

61966 4%

10%

15%

1748
2

-8%

31%

56918 4%

9%

16%

1642
9

-6%

28%

58322 2%

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

Company
Raymond
Vardhama
n
Century
Bombay
Grasim

CAGR
83%

AGR
8%

127%
130%
105%
123%

13%
13%
10%
18%

Revenue Growth
8000
7000
6000
5000
4000
3000
2000
1000
0
Mar 10(12)

Mar 11(12)

Mar 12(12)

Raymond

Vardhaman

Bombay

Grasim

Mar 13(12)

Mar 14(12)

Century

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 reasonsHigher 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 Indicators
Year
No.Of
Compan
ies

Latest
6

2014

2013

2012

2011

Key Ratios
DebtEquity
Ratio
Long
Term
DebtEquity
Ratio
Current
Ratio

0.22

0.19

0.18

0.11

0.21

0.21

0.19

0.18

0.1

0.16

1.51

1.58

1.6

1.16

1.05

Turnover Ratios
Fixed
Assets

1.17

1.15

1.39

1.51

1.44

Invento
ry

6.23

6.29

8.04

9.28

10.32

9.12

9.29

9.99

9.77

9.91

8.98

12.52

13.37

16.06

17.93

17.65

18.33

21.32

27.92

33.08

13.51

14.17

17.66

24.58

29.13

16.15

17.2

20

26.39

31.46

14.72

15.75

16.76

20.45

24.27

10.57

11.58

13.1

17.11

20.31

8.83

11.81

19.26

21.99

8.45

8.8

10.32

14.88

18.49

Debtors
Interest
Cover
Ratio
PBIDTM
(%)
PBITM
(%)
PBDTM
(%)
CPM
(%)
APATM
(%)
ROCE
(%)
RONW
(%)

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.

Chart Title
Retained Earnings
Net Income
Free Cash Flow
Capital Expenditure
Cash flow From Operations
Cash At End
0

10

Mar-12

Cash At End
Cash flow From Operations
Capital Expenditure
Free Cash Flow
Net Income
Retained Earnings

15

Mar-13

Mar-12
0.08
25.02
0
25.02
6.2
6.51

20

25

30

35

40

45

Mar-14

Mar-13
0.09
17.29
0.2
17.09
9.04
9.13

Mar-14
0.08
39.78
0.15
39.63
18.14
27.14

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 Performance

Share holder fund
Debt
Beta
ke
kd
WACC

Grasim

Raymond

Century

Vardhaman

97.95
57.44
1.11
17.99%
5.40%
13.33%

171.55
119.47
0.9
16.05%
8.80%
13.07%

1747.4
5677.85
1.53
21.87%
5.40%
9.28%

2848.32
3227.1
0.56
12.90%
4.90%
8.65%

Bombay
Dyeing
1463.55
1435.25
1.65
22.98%
9.40%
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 Efficiency

Working 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 follows1) Number of Days of Inventory
It shows the inventory level in terms of the number of days of sales

Chart Title
300
250
200
150
100
50
0

Bombay

Century

Vardhaman

Raymond

Grasim

Number Of Days of Inventory Mar-11

Number Of Days of Inventory Mar-12
Number Of Days of Inventory Mar-13
Number Of Days of Inventory Mar-14

Number Of Days of Inventory

Mar-11
203
83
130
96
58

Bombay
Century
Vardhaman
Raymond
Grasim

Mar-12
261
83
130
114
66

Mar-13
203
74
122
135
58

Mar-14
99
72
159
107
74

2. Days Sales Outstanding

With 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

Bombay

Mar11
203

Mar12
254

Mar13
201

Mar14
98

Century
Vardhaman
Raymond
Grasim

82
161
107
74

82
122
137
57

73
131
115
66

71
132
96
57

Chart Title
300
250
200
150
100
50
0

Bombay

Century

Vardhaman

Raymond

Grasim

Days Sales Outstanding Mar-11

Days Sales Outstanding Mar-12

Days Sales Outstanding Mar-13

Days Sales Outstanding Mar-14

3. Inventory Turnover ratio

A 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
Bombay
Century
Vardhaman
Raymond
Grasim

Mar-11
1.8
4.4
2.8
3.8
6.3

Mar-12
1.4
4.4
2.8
3.2
5.5

Mar-13
1.8
4.9
3
2.7
6.3

Mar-14
3.7
5.1
2.3
3.4
4.9

Chart Title
7
6
5
4
3
2
1
0

Bombay

Century

Vardhaman

Raymond

Grasim

Inventory Turnover Ratio Mar-11

Inventory Turnover Ratio Mar-12

Inventory Turnover Ratio Mar-13

Inventory Turnover Ratio Mar-14

AnalysisIf 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.

Debt ratio against Industry Average

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

3
industry avg

5
grasim

Chart Title
2.5
2
1.5
1
0.5
0

3
industry avg

grasim

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.