‘Levy on captive power will push up production cost'

The cement-to-yarn Grasim Industries is at its inflexion point with major expansions slated for completion in the next two years. The Rs 22,000-crore Aditya Birla group company created the post of Managing Director for the first time in 65 years.

With an experience of three decades in the Group, Mr K.K. Maheshwari was the obvious choice for the hot seat. He has handled leadership positions in the chemicals and trading businesses for the conglomerate and was also whole-time director of Aditya Birla Nuvo, a diversified subsidiary.

“Viscose staple fibre should be viewed like a commodity business,” said Mr Maheshwari, on the fluctuating fortunes of Grasim. “Prices are impacted by competing fibres such as cotton and polyester. But we are at a vantage position. All our plants are well integrated,” he said, in an interaction with Business Line .

What is the thought behind creating the post of Managing Director for Grasim?

Each of our business verticals – viscose staple fibre, chemicals and cement – have grown substantially. Besides the pulp and fibre business in India, Grasim also has a controlling stake in similar business in Sweden, Canada and China. In all our businesses, our target is to rank either number one in India or among top three globally. This calls for a dedicated approach. It was the board's decision to have a Managing Director to implement growth plans of the company.

Does the Budget offer any boost for the sector Grasim operates in?

It is a misconception that the industry is always looking for a boost in terms of concession. Indian industry has demonstrated its competitiveness in global markets. But we are at a disadvantage on the cost front. For instance, in energy the Government has imposed levy on captive power plants. This was unwarranted. Rising fuel prices and lack of proper logistics facilities at ports are another area of concern. All these things add up to the production cost and make it difficult to compete in the global arena. The country's potential can be unleashed if these things are set right.

What is the progress of the greenfield project in Vilayat?

We are setting up a 120,000-tonne VSF plant at Vilayat, Gujarat, at a cost of Rs 1,700 crore. In addition, a 200,000-tonne caustic soda unit and a power plant will come up at an additional investment of Rs 770 crore. Most of the civil works are close to completion. Work on boiler erection is in full swing. About 65 per cent of the production here will be of speciality fibre. While the first phase of the project will be completed by this year-end, the entire capacity addition will go on stream by March 2013.

What is status of brownfield expansion in Karnataka?

The first phase of the project will go on stream by June, gradually achieving the targeted production of 36,000 tonnes per annum by December, by when the power plant will also be operational fully. We will invest Rs 450 crore in Karnataka.

What is the development on global expansions?

We had acquired land in Turkey for setting up a 200,000-tonne VSF plant at an investment of $500 million (about Rs 2,500 crore). Application has been made for environment and other clearances. A final blueprint will be ready by June. We will improve the efficiency at AV Cell in Canada with an investment of $70 million (Rs 350 crore). We will also fund capacity addition at Domsjo Fabriker in Sweden. We will add 255,000 tonnes to its production capacity of 390,000 tonnes per annum.

How have the VSF demand and prices been currently?

If you compare VSF prices with last year it may be low. Last year, prices hit historic highs riding on overall commodity rally. But if you look at historic price movements it is almost at the same level. You should also understand that the cost of all key inputs has gone up. For instance, caustic soda prices are up substantially, so has the energy cost. There are also some indirect cost pressures like hike in petrol and diesel prices.

We feel the rise in freight cost when we import pulp. Grasim has managed the cost to a large extent due to our inherent strength of complete integration right from pulp to steam to chemical to power. If you see segmental reporting, VSF business may get affected when chemical prices go up, but part of this benefit will reflect in our chemical business. This makes our company different from competitors.

What is your plan to tackle fluctuating caustic soda prices in the VSF business?

All our expansion plans come with backward integration. In fact, in Vilayat we will get caustic soda by slurry pipeline for VSF production. We will save on logistics costs. There will also be a captive power plant, making us the most cost effective VSF producer. We hedge our caustics purchase from the open market by selling excess production at other plants.

Will you fund Ultratech's expansion through equity? What is your capex for the next fiscal?

We have a surplus of Rs 3,000 crore. We are exploring investment opportunities to strengthen our raw material requirement, especially pulp. In cement, UltraTech has an expansion plan of Rs 11,000 crore. It has a strong balance sheet with a very favourable debt-equity ratio. As of now, UltraTech can fund its expansion on its own and does not require our equity investment.

>suresh@thehindu.co.in

COMMENT NOW