Mumbai: Indian billionaire Kumar Mangalam Birla plans to spend $2 billion (Dh7.35 billion) in the next three years to add capacity and maintain his group’s position as the world’s largest producer of viscose staple fibre.
The Aditya Birla Group plans to raise its ability to produce the fibre used to make rayon, wipes and nappies by as much as 43 per cent to 1 million tonnes by 2015, Krishna Kishore Maheshwari, director of the pulp and fibre business, said in an interview.
Last week, Aditya Birla agreed to buy Terrace Bay Pulp, a paper pulp mill in Canada, to secure raw material supplies.
Birla, who runs businesses from cement to telecommunications, is betting his plan to acquire suppliers and add capacity will help the company control costs and enable it to profit from rising demand in Asia, home to the world’s two most populated nations. The investment in the fibre business will aid the group in boosting combined revenue by 63 per cent to $65 billion in three years.
“These are very challenging times,” Maheshwari, 57, said in his Mumbai office on Wednesday.
“The company aims to be the best quality producer at the lowest cost with focus on developing new products and improving cost structures.”
Grasim Industries Ltd, the largest producer of the fibre in the group, gained 0.4 per cent to Rs2,645 (Dh174) at 12.02pm in Mumbai. The stock has risen 6 per cent this year.
The investments include $300 million on a new plant in Turkey, $250 million in Terrace Bay in three years and Rs30 billion in Indian factories. In the last fiscal year it spent $340 million acquiring and is now in the process of investing $75 million in raising capacity at Domsjo Fabriker AR in Sweden, Maheshwari said.
The company is delaying its “big” plans to invest in wood plantations in Laos to secure supplies after failing to get approval for 60 per cent of the land required for the project in the south-east Asian nation, he said. Birla had proposed the investment in 2006.
“The business is cyclical and it’s good that the company is raising capacity now so it can benefit during an upcycle,” Ajit Motwani, an analyst at Emkay Global Financial Services, said in Mumbai. “The fibre business looks very promising especially as it’s a substitute to cotton, which requires huge land area to grow.”
To boost profit margins, the group, which started as a cotton trader in 1857, is “aggressively” focusing on speciality fibre products used in making high-value clothing, Maheshwari said.
Earnings margin before interest, taxes, depreciation and amortisation was little changed at 25.04 per cent in the year ended March 31 at Grasim, which earned 20 per cent of its revenue from selling the fibre. About 75 per cent of the company’s sales came from its cement business.
The company’s unit UltraTech Cement Ltd on June 20 was asked to pay an Rs11.8 billion fine by India’s anti-trust agency on charges it was part of a cartel. The fine, imposed on 11 cement suppliers for price-fixing, must be paid within 90 days. UltraTech plans to challenge the order, Maheshwari, who is also the managing director of Grasim, said.