| Suresh P. Iyengar
The Hindu Business Line
16 August 2015
Grasim Industries, part of the Aditya Birla Group, has made substantial investments across its businesses and executed a few acquisitions in last few months. Thanks to the lower debt, the company could wait out the economy's recovery. Grasim’s Managing Director KK Maheshwari is banking on the high-quality VSF (Viscose Staple Fibre) produced at its new plant to ride the downturn in prices. Excerpts from an interview:
Do you see an investment revival happening?
We believe the green shoots are already visible and it will take at least couple of quarters to see investment on ground. The government has already approved many road and highway projects and investment will start soon. We expect demand for cement to get a boost with relaying of roads and improving quality of highways. As of now, bank credit off-take is low. They are largely providing funds for refinancing and working capital.
Will Aditya Birla Group slow down its capital expenditure?
No way. We have already spent $4 billion across our business in the last five years when there was downtrend in commodity cycle. We have lined up Rs.5,600 crore for two planned acquisitions in the cement business. With the recent investments, we are well-prepared for the economic revival. We are fast ramping up capacity at the Vilayat plant and the capacity utilisation touched 85 per cent in the June quarter. Our capacity addition in the last few months will put us in a bright spot when commodity prices recover. VSF prices have bottomed out and are showing signs of revival. Moreover, the Vilayat plant produces speciality fibre which fetches premium even in downtrend.
How do global events impact your business?
VSF prices are closely linked to cotton. Developments in China have an impact as they are the largest producer of both VSF and cotton. They have production capacity of 3.9 million tonne (39 lakh tonne) while it is 4.98 lakh tonne in India. The government should have an eye on cheap imports. We are as much competitive as China is, but the kind of additional cost levied on the industry is upsetting our cost structure. For instance, if I produce my own captive power, then I have to pay additional duty and cess. We have operations in 10 countries and I can tell you the logistics cost in India among the highest. On top of all these, we face predatory pricing by competing countries to tap into our market.
Have VSF prices bottomed out?
I think so. A large VSF company in China recently sold one of its companies to the government. We do not often see private companies selling their company to the government. It may reflect that they were not profitable intrinsically. As far as cotton is concerned, there are limitations on availability of arable land. Yield has started falling even in China. Though the crop size in India is going up, there are many challenges.
Are you eyeing any Lafarge or Holcim assets put on the block as part of their merger?
We already have significant presence in the places where their assets are up for sale. Moreover, the Competitive Commission [of India, CCI] has made it clear that companies with leadership position in the particular region cannot bid for the asset.
Are you worried with key bills like GST being delayed?
We are not losing sleep over GST. Now they are talking of levying one per cent CST (Central Sales Tax) when goods move from one state to another under the GST regime. Our fabrics are made in Surat and sent to the South [southern India] for stitching and sent back to another state.
What impact the CST would have on this, we have to wait and see. Having said that, the important point to be noted is that the government has not deviated from its reform path. It is well aware of the excess capacity built up in sectors such as steel and cement.