Grasim Eyes Rs. 1,200-cr. Additional Revenue from Chemical Expansion

Grasim Industries, an Aditya Birla group company, expects to generate additional revenues of about Rs. 1,200-crore per annum with its plan to invest Rs. 1,000-crore in expanding caustic soda and new chlorine value-added products. Mr. Sushil Agarwal, Director and Group CFO, said the brownfield expansion at various plants in Karnataka and Gujarat are expected to be commissioned in 18 months after receiving the environment clearances.

Rising input cost in the viscose staple fibre (VSF) business is not much of a concern for Grasim as it sources 80 per cent of its raw material from group companies. The almost fully backward integrated operation has helped the company to stay ahead of the cost curve, he added.

Integration benefits

The company is fully integrated for caustic soda, carbon disulphide and power, which accounts for almost 30 per cent of production cost. It sources 60 per cent of dissolving grade pulp, which constitutes 55-60 per cent of the overall cost, through joint venture companies in Canada and Sweden. Mr. Agarwal said though the pulp is sourced at market price, the cost benefit flows back in the consolidated account through profit from the joint venture company. Grasim has competitive advantage over others as 80 per cent of the cost is hedged through high backward integration.

Mr. Agarwal also revealed plans to invest Rs. 6,400-crore in the textile business by the financial year 2021. The company plans to fund the expansion largely through internal accruals.

Mr. Dilip Gaur, the company’s Managing Director, said that while the demand for VSF has been good in both the global and domestic markets, the fresh capacity of about one million tonnes being added this year in China is a concern. However, he added the VSF capacity addition will not be more than half-a-million tonne as concerns over environment have been raised.

Century Textiles deal

Grasim expects viscose filament capacity of 25,000 tonnes taken over on lease from BK Birla-owned Century Textiles to add an EBITDA of Rs. 450-crore this fiscal. The plant, which is located at Shahad near Thane, will save about Rs. 20-crore through the synergy with Grasim operations, he said.

Grasim has entered into an agreement with Century Textiles to manage and operate its viscose filament yarn business for 15 years. The agreement would provide Grasim the right to use the Century Textiles assets, while the ownership will remain with the BK Birla Group. As per the agreement, Grasim will pay Rs. 600-crore as royalty and make a refundable security deposit of Rs. 200-crore.