Grasim expects VSF industry to remain under pressure

The Chemical business continued to perform well. ECU realisation remained firm as lower chlorine offtake led to lower industry utilisation. The operating profit, as well as margins, grew.

VSF & Chemical Capex
- At Harihar (Karnataka), having commissioned Phase I expansion in Quarter 2, Phase II (18,250 TPA) expansion is expected to be completed in the current quarter.
- The greenfield projects of VSF (120,000 TPA) and Chemical (182,500 TPA) along with captive power plants at Vilayat (Gujarat) are progressing well. On completion by Quarter 1 in the next fiscal, these projects will generate additional volumes and profitability.
- Work on Epoxy project (Vilayat) has started and is likely to be commissioned in September 2013.
- A major revamp of the VSF plant at Nagda has started which will be undertaken in phases, spread over the next three years.

Cement Capex

The brownfield expansions at Chhattisgarh and Karnataka totaling 9.2 Mn. TPA are on track. Clinker capacity is expected to be completed by Q1 FY 2013-14. Consequently, UltraTech’s cement capacity will stand augmented to 62 Mn. TPA.

Disposal of Investments

In line with the Company’s long term strategy of exiting from unrelated investments, the Company has entered into agreement to sell its entire holding of 15 per cent unquoted equity shares in Alexandria Carbon Black Co. (ACB) and 2.75 per cent quoted equity shares in Thai Carbon Black Public Company Limited (TCB) to another Aditya Birla Group Company. While the sale of TCB has been completed at market valuation in January, 2013, the sale of ACB shares will be completed shortly at the fair valuation done by the independent reputed valuer. 

Outlook

Given the prevailing global economic conditions, coupled with the surplus capacity in China, the VSF industry is expected to remain under pressure for some more time. However, in Cement, the long term demand is expected to grow by an average 8 per cent with housing, infrastructure and allied spending being the key value drivers.

Industry capacity utilisation is likely to improve to 80 per cent in FY 2016 as the pace of capacity addition will slow down. Input cost is likely to increase in line with the general inflation with margins remaining range bound.

Capacity expansions under implementation in both VSF and Cement will provide additional volumes, driving growth and further consolidation of the Company’s leadership. The Company will continue to focus on cost reduction measures and improving asset productivity to maintain its position as the lowest cost producer creating shareholder value.

Grasim