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Chennai-based Murugappa Group has planned Rs 1,000-crore capital expenditure in the current year with three-fourths going into expansion of its engineering and fertiliser businesses.
The group is confident of maintaining its growth at about three times the GDP growth, as it has done in the last three years, but there are concerns, said the Group's Executive Chairman, Mr A. Vellayan.
In 2011-12, the Group sales were Rs 22,314 crore, which is 31 per cent higher than the previous year; and operating profit Rs 2,692 crore, a growth of 20 per cent.
The main worries are the increase in costs of raw materials, power, finance, and transport. No bold policy initiatives for growth can be anticipated with the general elections two years away and estimates of GDP growth – the sum of all products and services – is subdued. The sentiment in the stock exchanges is damp as FII sentiment is negative due to “inconsistent policy environment”.
The Murugappa Group, which has a diverse presence including in manufacturing, sugar, agriculture including fertilisers, pesticides and financial services will do well in some sectors and take a hit in some, he said, explaining the reason for the concern.
The company is set to do well in sugar, in which it is among the top three in the country in size of operations, and financial services.
It is cautious on engineering and fertilisers, he said. Of the total capital expenditure, it will invest Rs 500 crore in expanding operations of Tube Investments, which is into engineering and makes cycles, components and metal formed products. It is setting up a large diameter tube plant.
The fertiliser business will absorb about Rs 280 crore, which includes Rs 70 crore for a Single Super Phosphate plant of nearly 800,000 tonnes at Bhatinda, Punjab. This will take its total fertiliser production capacity to about 4 million tonnes.
The group will spend Rs 85 crore on Carborundum Universal, the abrasives maker; Rs 76 crore in E.I.D.-Parry, the third largest sugar producers in India; and about Rs 140 crore in other businesses. Last year the total capital expenditure was Rs 632 crore.
In its financial services business, its NBFC could evolve into banking if the policy permits.
But that could be a few years away, he said.
The group is open to diversification into new sectors when opportunities arise, he added.
The Group Finance Director, Mr N. Srinivasan, said the net profit in 2011-12 was Rs 1,304 crore against Rs 1,182 crore in the previous year.
The estimates of increase in cost ranges around 15-20 per cent in the current year but a relief for the group is that most of its businesses are protected with their own captive power sources.
The opportunity to pass on the entire cost is also limited because of market factors.
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