Grasim in 10Mt brownfield expansion

Grasim in 10Mt brownfield expansion
Published: 21 May 2010

Grasim Industries, the flagship cement company of Aditya Birla Group, aims to add 10Mta capacity.

Though the company declined to give details, sources close to the development said the capacities would be added in Chhattisgarh, Tamil Nadu and Andhra Pradesh.

"The company will put three kilns of 10,000tpd each and the orders are estimated to be placed by June. The tenders have already been floated for the same," a source said.

Work is to start in the last quarter of this fiscal.

Adesh Gupta, group chief financial officer, Grasim Industries said, "We are going to expend INR5500-6500 crore for the 10Mt capacity expansion and we are looking at sites. The exact area for brownfield expansion we can give only in the next quarter. We have 8-10 plans across the country and we would expand where we are ready to do it faster." It would take 24-27 months for the new capacity to go on stream.

Grasim will also put up bulk cement terminals, logistics support systems and waste heat recovery systems, which will be funded from the capex of INR4475 crore earmarked for the cement business, of which INR3414 crore would be spent this year.

The company currently has one bulk terminal operational, at Hyderabad. The contribution of cement business to Grasim’s revenues declined from 79 per cent last year to 75 per cent this year. The management has indicated that the oversupply situation will put pressure on margins going forward.

Analysts had earlier predicted good Q1 FY11 results based on the increase in cement prices since March, but with the fall in prices of late and demand subdued, they do not expect margins to hold strong anymore.

Analysts also feel that the recent acquisition of ETA Star of Dubai by Grasim’s subsidiary UltraTech at a valuation of US$125/t was an expensive deal. ETA Star has presence in Dubai, Bahrain and Bangladesh.

Following the acquisition, Grasim will stop exports to the Gulf countries where it used to export 1-2Mt a year, though the amount had lately declined for lack of construction activity in those countries. The company is now looking at Indian Ocean region countries for acquisitions closer to the ports.

Meanwhile Grasim is demerging its cement business into Samruddhi Cement Ltd effective October 1, 2009. Grasim will hold 65 per cent equity stake in Samruddhi, which would be listed and merged into UltraTech effective July 1, 2010.