The Hindu Business Line : Murugappa group plans Rs 1,300-cr capital spend

In expansion mode: Mr A. Vellayan (left), Vice-Chairman and Director, Strategy, Murugappa Group, and Mr N. Srinivasan, Director, Finance, at a press conference in Chennai on Monday.

Our Bureau

Chennai, May 5 Murugappa group intends to spend Rs 1,300 crore on capacity expansions in 2008-09. The group also plans to add muscle to three fledgling businesses — “rural retail”, neutraceuticals and life sciences.

The proposed investments are more than twice as much as last year (Rs 580 crore). Addressing a press conference here today, Mr A. Vellayan, Vice-Chairman and Director-Strategy of the group, said that EID Parry would invest Rs 350 crore in a greenfield sugar refinery, coming up at Kakinada SEZ. The refinery is coming up under a joint venture with Cargill, in which the Mugurappa group owns 51 per cent.

The refinery was originally planned for a capacity of 600,000 tonnes of sugar a year, but now the thinking is to produce 1 million tonnes.

Door frames for Nano

Bulk of the proposed capex investments will go into the refinery, all the other group companies are expanding as well. Carborundum Universal is spending Rs 50 crore on expanding its ‘metallised cylinders’ unit. Tube Investments will spend Rs 160 crore. The tube plant at Chennai is being expanded. The ‘metal forming’ division, which makes door frames for Maruti and Hyundai cars, is gearing up to supply to Tata Nano and to the Indian Railways.

EID Parry is also spending Rs 165 crore in setting up distilleries and ethanol. A Rs 74-crore distillery in coming up at Sivaganga.

Part of the funding for the expansions will come from the Rs 700-odd crore that the group will get from the sale of its 47 per cent in Parryware Roca, to the Spanish collaborator, Roca.

Phosphoric acid supplies

Capacity expansions apart, one of the highlights of the Murugappa group story is its having completely secured supplies of phosphoric acid, needed for making fertilisers, through two investments in Africa.

The first is with Foskor of South Africa. Coromandel Fertilisers has 2.5 per cent stake in Foskor. Under a three-year ‘business assistance agreement’, Coromandel would help the South African state-owned company turn around and, in return, will get to own more of the company. The three-year period has just ended and by June, it would be determined as to what percentage would Coromandel’s stake in Foskor go up. Meanwhile, Coromandel will get 250,000 tonnes of phosphoric acid from Foskor each year.

The second arrangement is with Group Chimique Tunisien of Tunisia. Part of the deal is a long term supply agreement with CGT—200,000 tonnes a year. The other part is the setting up of a joint venture with CGT, in which Coromandel will invest $28 million for a 15 per cent stake. The joint venture will also supply Coromandel another 200,000 tonnes of phosphoric acid. Between Tunisia and South Africa, Coromandel has secured over 90 per cent of its phosphoric acid supplies.

New Ventures

The other highlight is the company’s renewed thrust on some of its fledgling ventures.

One is retail. In Andhra Pradesh, Coromandel Fertilisers today runs 20 retail shops under the brand ‘Mana Gromor’. (Mana means ‘our’ in Telugu and Gromor is a popular brand of Coromandel’s fertilisers.) The outlets sell all kinds of farm inputs, including financial products – loans and insurance – that may be needed by farmers. Plan is to sell even household products that a farmer may need. The group wants to expand the number of shops and get into other States also.

In Andhra Pradesh, the group has a client-base of some 25 lakh farmers — potential customers for a host of products. “Leading players in FMCG, farm implements, healthcare and telecom have approached Coromandel to participate in the distribution network,” Mr Vellayan said.

Another venture is ‘life sciences’. The group has some interests in producing neem-based pesticides, algae and glycopene, which is the ‘red of the tomato’. Parry Neutraceuticals also produces spirulina and beta carotene products. Mr Vellayan said that the group has major plans for these products. “You will hear more details in about six months,” he said.

In 2007-08, the group’s turnover amounted to Rs 9,582 crore. Profit before tax was Rs 711 crore. Turnover grew 15 per cent and operating profit by 17 per cent.

This was despite a sharp downturn in the performance of EID Parry and Tube Investments. While the former suffered from a down cycle in the sugar industry, Tube Investments was hit by rise in steel prices.

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