Grasim to incur 27.6-bln-rupee capex Jul-Mar in viscose, chemical ops

30 August 2022

Grasim Industries Ltd's chairman Kumar Mangalam Birla's emphasis on the company's capital expenditure plans for its existing businesses in viscose staple fibre and chemicals and the new paints business in the annual shareholders meeting held on Monday came on the back of elaborate details provided by the company earlier this month post disclosure of June quarter results.

Birla told shareholders that existing businesses' capex guidance of 31.2 bln rupees for the 2022-23 (Apr-Mar) will be "towards capacity creation and modernisation of plants" as against 19.6 bln rupees capex incurred in 2021-22.

But recent data by the company indicated that only 11.4% of the guided capex figure for 2022-23 was spent in the June quarter.

The Jul-Mar period of the current financial year will, therefore, see a surge in capex spending by Grasim Industries in its existing businesses alone. The company is expected to spend 27.63 bln rupees during these nine months.

Paints capex
Birla told shareholders that of the additional capex amount of 100 bln rupees for the new paints business the company had spent 6.1 bln rupees as of the end of 2021-22.

The recent data by the company showed that another 2.1 bln rupees of paints capex was incurred in the June quarter.

It meant that going forward Grasim would likely incur capex of 91.8 bln rupees towards the paints business alone.

But the company recently indicated that it will start spending bigger chunks of the 100-bln-rupee planned capex for paints from the second half of the current financial year onwards in order to meet the target of 2024-25 for going live with paints production.

The company's chief financial officer, Ashish Adukia, told analysts and investors in a recent post-earnings conference call that from now on the capex spends in paints will "be front loaded because we've started ordering for equipment etc."

Adukia said that paints unit construction was going on in almost four sites. "Directionally, yes, there will be large paints capex next year along with other capex," he said.

Viscose capex
Of the total guided capex for existing businesses, Grasim had earmarked 14.31 bln rupees for the viscose staple fibre segment for the current financial year of which 5.87 bln rupees is for capacity expansion and 8.44 bln rupees is for maintenance and modernisation.

But tn the quarter ended June the company had incurred only 11% of the targeted amounts for each of these two elements.

The viscose staple fibre capex is unlikely to include any brownfield expansion, Grasim's managing director Hari Krishna Agarwal told analysts in the recent conference call in response to a question. He said the company would "love to do that… but for the time being that is not… on the drawing board."

According to Agarwal the company was trying to balance and optimise the capex spends with the debt requirements keeping debt to equity ratio and debt to EBITDA ratios in mind. EBITDA is earnings before interest, tax, depreciation and amortisation.

Chemicals capex
In its chemicals segment Grasim has committed a capex of 12.63 bln rupees for the whole of 2022-23 but the actual expenditure as of June 30 was only 10.1%.

The company is, therefore, expected to spend 11.35 bln rupees more in the Jul-Mar period of the current financial year.

The full year capex target in chemicals covered 7.19 bln rupees towards capacity expansion with 0.66 bln rupees spent in Apr-Jun and 5.44 bln rupees towards maintenance and modernisation of which 0.62 bln rupees capex was incurred in the June quarter.

Grasim has also targeted capex of 4.23 bln rupees for its operations in viscose filament yarn, textiles and insulators. Of this, the company incurred 0.69 bln rupees in Apr-Jun.

Debt concerns
Analysts have expressed concerns of the high rate of capex by Grasim.

The company's consolidated net debt went up to 67.8 bln rupees as of Jun 30 from 43 bln rupees at the end of March. The gross debt stood at 171.4 bln rupees as of Jun 30 while liquid investments were worth 103.6 bln rupees.