“Most of the production in China is of commodity grade, while we are focusing on specialty products,” Sushil Agarwal, Director – Grasim and Group CFO, tells Moneycontrol in an interview.
Earlier this week, Aditya Birla Group company Grasim Industries announced an investment of Rs 7,427 crore to expand its textile and chemicals business, which saw robust growth in the fourth quarter of the FY18.
The investment will help Grasim maintain its leadership position in both segments, and also keep a tab on the rising competition from China, especially in the case of viscose staple fibre (VSF). But the firm, which generated Rs 3,500 crore in EBITDA in the 2018FY, is not too perturbed about the Chinese competition.
“Most of the production in China is of commodity grade, while we are focusing on specialty products,” Sushil Agarwal, Director – Grasim and Group CFO, told Moneycontrol in an interview.
Excerpts from the interview:
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In your quarterly results release you have mentioned that the new capacities in China may impact VSF prices. How much of a concern is that?
China, and Indonesia, are adding about a million ton of capacity in the next 12-15 months. In any product, with new capacity there would be market disruption as the demand-supply dynamics get impacted. So that is one challenge that we need to deal with.
The good part is that China is operating at 80-85 percent capacity utilisation. And we are almost at 100 percent. Also, China makes more of commodity. In our case, one-third of our production consists of specialty products. So that is helping us.
How about the impact on prices?
From Grasim point of view, it does have a role but is limited. For us, 75 percent of the sales comes from India (up from 69 percent in FY17). Also, when the prices were hiked internationally, we didn’t adjust our prices as we wanted our customers to have a sustained level without much volatility. So this will help us.
You talked about specialty products. How has the Liva brand helped you in this?
Today, we know that cotton is one of the best fibres, with a high level of breathing and moisture absorption. But few know that VSF can offer almost the same thing, and even better. For instance, VSF consumes less water compared to cotton.
Liva has helped better our offering and drive this message. In three years, Liva-tagged garments have seen a 10-fold increase. And in the last financial year, we had 30 million Liva tagged garments in India. So there is a consumer pull now.
To increase awareness among brands on the use of VSF, we have two studios in Delhi and New York. In value chain, we are far from a designer and that’s why through the studios, we want to showcase to the designer that if you use viscose this is the garment that you get.
We do similar initiatives with other partners in our supply chain. Like if you use VSF in a particular way, then its strength increases. This is because viscose as a fibre is not as strong as cotton, but this technology helps.
Now if you convert these initiatives into numbers, in the last two years in India, our growth is around 22 percent. At a global level VFS is growing at 4-5 percent and in India the industry average is 8-9 percent.
On the studios, are you looking to add more?
Yes, we need to see where the designers are sitting and who influences the large brands globally. Our intention also would be put more studios in other parts of the globe where other big designers are sitting.
You are expanding capacity at your plant in Gujarat. What is the timeline?
Typically, all these expansions take about 30 months. We got the approval in the last quarter of last financial year. We are also doing debottlenecking.
In the cement business, you are ramping up plants acquired from Jaiprakash Associates. What is the update on that?
We have increased the capacity utilisation to close to 75 percent, which is the industry average. So we have ramped up the utilisation quickly. The plan is to do much better as there is volume growth in industry with the increased spending on infrastructure.
Grasim has got the rights to operate and manage the viscose filament yarn business of Century Textiles. Would you look at acquiring it eventually?
Currently, we have a 15-year arrangement and we are doing what is required. We don’t need to own the assets. We can extend the arrangement post the 15 years. That is working well for us.