Murugappa Group bets big on capacity utilisation

The ₹30,000-crore Murugappa Group is confident of capacity utilisation hitting the ceiling in the current year demanding finalisation of capital investment plans in the second half.

A Vellayan, Chairman, said 2016-17 has been the “best in history” for the group with diversified businesses in financial services, sugar, agro inputs and engineering. The Group’s capital expenditure has been muted in recent years.

But capacity utilisations are on the increase. At about 75 per cent now, in the current year it “will hit levels at which we will have to think of expansions” which is usually around 85 per cent, he said.

For the Murugappa Group, 2016-17 has been rewarding with the market “recognising the strength and competitiveness of its underlying businesses”, he said referring to the 43 per cent surge in the market cap of group companies to $8 billion from $5.6 billion at the end of the previous financial year.

During 2016-17, Murugappa Group companies’ gross sales hit a high of ₹30,023 crore up from ₹29,395 crore in the previous year with the profit before tax and extraordinary items jumping 59 per cent to ₹2,973 crore (₹1,873 crore).

The growth has also been aided by the “positive policy environment in many of our businesses for which the current government at the Centre has to be congratulated,” said Vellayan.

The government has been responsive to domestic needs whether in sugar, with a measured approach to allowing exports or imports; in fertiliser, accounting clearly for domestic production to gauge the need for imports and direct benefit transfer to farmers; and in financial services, including implementation of SARFAESI Act for loan recovery, push for insurance penetration and crop and weather insurance, the government has responded to the needs of the industry, he said.

On the outlook for the current year, Vellayan was confident that the group could sustain a 20 per cent growth. With fertiliser and agro chemicals businesses growing at 20-25 per cent depending on the monsoon. The company, Coromandel International is prepared for the Direct Benefit Transfer which is likely to be implemented from January, he said on the government move of transferring fertiliser subsidy to farmers.

For EID Parry, there could be some contraction in the sugar business with the dry spell continuing in Tamil Nadu and Andhra Pradesh. Sugarcane availability could drop by about 25 per cent, he felt.

Vellayan who recently met with investors in the US as part of an annual exercise to update on the group’s performance, said: “India is a sweet spot for international investors”. In some of the sectors they are interested in, four of the Group companies – Tube Investments, Cholamandalam Finance, Coromandel International and Carborundum Universal – are significant players. Coromandel International is also expanding its chain of agro inputs and services retail centres to new markets, including Maharashtra, Odisha and Chhattisgarh where 200 outlets will be added. It now has 800 outlets including the ones in Andhra Pradesh and Karnataka.

The Group, which has expanded geographically, has kept its expansions in Tamil Nadu, its home base muted. If issues such as ease of doing business and decision making “are better elsewhere then we gravitate there”, he said.

It has expanded to Andhra Pradesh, Karnataka, Jharkand, West Bengal and Gujarat and Tamil Nadu’s contribution to its profits have been continuously dropping in the last five years, Vellayan said.

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