Grasim Industries, the Aditya Birla Group company with interests in cement, chemicals and fibres, reported nearly flat growth in net profit at the end of the March 2017 quarter.

In an interview, Sushil Agarwal, Whole-Time Director and CFO, explained that the cement business (Grasim holds 60 per cent stake in market leader Ultratech) is still outperforming the industry even as Grasim gears up to complete its massive restructuring plans. Excerpts:

Your results show a fairly weak quarter for the cement business, with EBITDA down 10 per cent year-on-year.

We’ve still done better than the industry. You have to move beyond the quarterly results. The VSF (viscose staple fibre) business has seen large volume growth, we’re increasing the domestic market share and making cost savings.

Chemicals business has also seen volumes rise, especially in value-added products.

In the cement business too, our earnings before interest have gone up significantly.

EBITDA per tonne of cement has gone up six per cent year-on-year this fiscal to ₹1,094 and Ultratech’s domestic capacity utilisation is at 82 per cent; for the industry, this figure is less than 70 per cent. If you compare with industry, we have shown far superior performance.

What are your capital expenditure plans for FY18?

We spent ₹1,677 crore as capex in FY17. Our projection is ₹5,827 crore for the next two years, of which ₹3,040 crore will be in FY18. About ₹2,190 crore of that will go into the cement business.

You have a massive restructuring plan — the merger of Grasim with Aditya Birla Nuvo — going on that is expected to complete in Q2 of FY18. But shareholders of Grasim were concerned that after the merger, they will be exposed to the cash-burning telecom business (with Idea Cellular). Can you explain the rationale for the merger. How does Grasim change once this is complete?

In hindsight, my impression was that the media added to the confusion about the restructuring and it got positioned as if the plan was for simply to finance the telecom business. That was completely untrue. Investors got panicky because of that and we had to reassure them about our proposals. And they have seen the merits, that’s why we got the approvals from shareholders and creditors.

It’s too early to comment on how the merger will change the revenue contribution to Grasim. That depends on how the different business verticals grow.

When do you see the benefits of the merger accruing to the new company?

Even if you add up the numbers of FY17 of the two companies, the merged company has revenues of over ₹50,000 crore with negative net debt. Once the merger is complete, I think effectively from day one, you will see the benefits flowing in.

Nuvo has a much smaller balance sheet and if the financial services business had to grow and raise capital, they would have struggled. Bringing it to Grasim, with a stronger balance sheet and a much bigger parent, the growth of the financial services business can be fast-forwarded.

So, will there be an equity infusion in Aditya Birla Financial Services Ltd, which will be listed separately?

That remains to be seen. Once ABFSL is listed, it will have multiple options for raising its own growth capital if they decide to do so. It can raise from the existing set of shareholders, which would mean that Grasim will proportionately fund that capital.

Some business activities, from a growth point of view, have a constant need for capital, like the NBFC. If the primary market is attractive, they might even raise from new investors. Either way, they will have a strong parent backing it.

What is the strategy for your viscose staple fibre (VSF) business and the Liva brand?

In VSF, we have the dominant market share. We are growing the market. In India, people used to believe that VSF is for blending with other fibres but with Liva we are trying to prove the VSF itself can give you great fibre. Viscose is great for moisture management, comfort and drape, especially for women’s and kids’wear.

So, we are trying to promote 100 per cent viscose apparel. We’re working with apparel designers to create products based on VSF. Because of this, the VSF market has grown in double digits. While the textile market has grown at 4-5 per cent, we’ve grown at 12 per cent.

Last week, the government announced the final GST rates and the tax on cement will increase to 28 per cent. Will you pass on that additional cost to buyers?

It’s too early to comment on GST. Industry would try to make use of this to pass on some cost. If you look at cement, you can pass on only what customers can afford.

Ultimately, customer affordability counts. That’s the last leg of the transition. I think it will evolve, but we can’t give a guidance today. GST itself as a subject will take time for things to settle.

Different products have different price elasticity. If you’ve decided to build a house, and there’s an increase in cement cost, it won’t be the driving force to defer that decision.

If the government wants to build a seaway, if the overall cost increases by ₹1,500 crore here and there, but if it removes a lot of hurdles, (they might choose to go ahead) it’s all relative.

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