Grasim-Aditya Birla Nuvo merger ‘on track’

Suresh P Iyengar Mumbai | Updated on January 15, 2018


Grasim board agrees to distribute 25-45% of company's profit as dividend per year

Grasim Industries has bounced back well from the controversial proposal to merge the group company Aditya Birla Nuvo with itself and subsequent spin off of financial services. The company has gone out of the way to explain the proposal to investors even as there are concerns about the move. The restructuring within the group apart, the company has drawn an ambitious growth plan and expects demand for viscose staple fibre to grow. The company registered a strong financial performance in the September quarter and hopes things will fall in place soon.

Dilip Gaur, Managing Director, and Sushil Agarwal, Whole-Time Director and CFO, Grasim Industries spoke to BusinessLine on the future prospects. Excerpt:

What is the progress of the merger proposal?

Agarwal: It is on track. The process requires many regulatory approvals including that of stock exchanges, SEBI and High Courts, besides shareholders. We expect to complete the entire process by end of this fiscal or in the first quarter of next financial year. The financial services business will be listed on exchanges by next fiscal.

Have you managed to convince investors on the restructuring?

Agarwal: We were confident that the proposal will go through from day one. Unnecessary controversy was created as the reason behind the move was not understood properly by few people. We had explained the plan to domestic and foreign institutional investors who are more than convinced with our clarifications. Eventually, the outcome of shareholders voting will decide the final fate of the plan.

What is the highlight of the dividend distribution policy approved by Grasim board today?

Agarwal: The dividend policy was as mandated by the market regulator SEBI. The Board has agreed to distribute 25-45 per cent of the company's profit as dividend per year. This will be at the prerogative of the board. A broad range on dividend payout has been approved as payout to investors depend on various factors including company's performance, cash flow, growth opportunities, capital expenditure and overall liquidity position. The board will take a call on the dividend on quarterly basis after considering business prospects.

How is the demand for viscose staple fibre?

Gaur: It has been growing at a steady pace. In the last 18 months, the company has been working with value chain participants to increase usage of VSF in garment. Being a fibre manufacturer, we had a disconnect with the garment industry. However, things are changing as we are helping the textile industry to launch new fashion lines using VSF. As a fall out of our efforts, domestic demand for VSF has gone up 19 per cent in this quarter and we expect this to grow significantly in the coming days due to versatility of the fibre.

Excess VSF capacity in China was depressing VSF prices for the last few years. Any change on this front?

Gaur: We do not think China's excess capacity will have a role to play any more. In fact, VSF prices are holding strong, despite Chinese producers operating their plants at over 96 per cent. This is largely because the global demand for VSF is looking up.

With no big new capacity planned in China and its inventory levels coming down, VSF business is poised for good growth. Moreover, besides textile, the demand for VSF is also coming from non-woven fabrics.

As per recent study, VSF demand is expected to grow five per cent globally, and in India, it expected to register double-digit growth because of its varied application.

What is the capex for this fiscal?

Gaur: We plan to invest about ₹4,500 crore this fiscal including cement projects.

We will be investing ₹500 crore to increase caustic capacity by 2.08 lakh tonnes per annum to 10.48 lakh tonnes per annum through brownfield expansion at Vilayat (Gujarat) and debottlenecking at other plants.

Published on November 01, 2016

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