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Grasim to focus on readymade garments - Views on News from Equitymaster
According to newspaper reports, Grasim Industries Limited plans to focus on the readymade garments segment in exploiting its brand and distribution assets.
Grasim (FY99 Turnover Rs 34.13 bn), part of the Aditya Birla Group of companies, has interests in viscose staple fibre, cement (28% of sales), textiles and sponge iron.
Grasim, which is primarily engaged in commodity businesses, plans to increase shareholder value by pushing value-added products through its existing network. Although the company already has a presence in the textiles business, it plans to become more aggressive in the future.
A successful entry into the readymade garments business will help the company in shoring up its margins. Moreover, as the company already has an existing distribution network, the cost of launching new products is minimised to a large extent. Apart from this, the readymade garment business will act as a hedge in times the commodity cycles turn for the worse.
However, the readymade garments business is very competitive and requires a lot of marketing and advertising initiatives, which will involve large sums of money. This could put pressure on the bottomline of the company in the near term. Moreover, Grasim lacks adequate experience in operating in the more competitive branded goods segment.
Market View:
Analysts have rated the stock as a 'BUY' mainly on account of the turnaround in the cement industry and various other commodity businesses the company operates in.
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