Chairman’s speech at the 73rd AGM of Grasim Industries14 September, 2020
We are connecting at a time of unprecedented volatility. The past six months have been a defining period for humankind. From companies to individuals, resilience is being tested like never before. The lack of visibility on an expiry date for this crisis makes it an even more challenging proposition.
And yet, we have all witnessed remarkable moments of change and transformation all around us. This virtual meeting that brings together members of this storied company, from every nook and corner of the country, is perhaps a telling example.
Despite the uncertain and challenging business environment globally, there is no doubt that companies with quality leadership, sound business fundamentals, and a robust balance sheet, will emerge as champions in the new global order. Your Company with its firm footing, prudent approach, strong balance sheet and quality leadership, is well positioned to tide over this global crisis and emerge even stronger on the other side of the post-COVID world.
I would now like to briefly share my thoughts on the current economic landscape.
From a growth rate of 2.9% in 2019, the global economy is expected to contract by 4.9% in 2020, as per the IMF. However, global growth in 2021 is estimated to rebound to 5.4% YoY, as economic activity revives backed by fiscal and monetary measures across the globe.
The Indian economy delivered a subdued performance in the last fiscal year with FY20 GDP growth falling to 4.2% primarily led by manufacturing and construction sector weakness. As expected, we witnessed a contraction in economic growth in the first quarter on account of widespread shutdowns. Despite this slump in Q1, the activity levels are gradually normalizing.
Both the Reserve Bank of India (RBI) and the Government of India have announced several policy measures to provide relief to the affected sections of the economy and to support the process of recovery. I remain confident that India’s long-term growth potential remains intact despite the COVID setback. The IMF also has estimated that the Indian economy will rebound to 6% in FY22. The Government’s move to promote domestic champions, through the Atmanirbhar Bharat programme is commendable. Grasim traces its very origin to the spirit of nation building. Its success over 8 decades is an emphatic endorsement of Atmanirbhar Bharat. Today, your Company, is home to world-beating fibre and cement companies. The unmatched global scale built across diverse sectors like fibre, chemicals, and cement, is on the back of decades of relentless innovation, soaring and fearless ambition, incessant cost consciousness, and nimbleness. These are the qualities of an Atmanirbhar Grasim which has been nourished from India and flourished globally.
Let me now give you a glimpse of how your company navigated the disruption caused by COVID-19. In these turbulent and dynamic times, your Company demonstrated extraordinary resilience on account of its diversified business portfolio, inherent balance sheet strength, and unflinching support of its employees. Post the outbreak of the pandemic in the last week of March, almost all our plants and corporate offices were shut in compliance with Government directives. As the government granted permission to restart partial operations, we were able to swiftly improve capacity utilization in most of the major plants to 75%+ within the June quarter. Our employees ensured uninterrupted business support while adopting to the new paradigm of work from home. The management team also reassessed business models, to identify strategic and tactical opportunities to improve effectiveness, prune avoidable costs, as well as prepare for the new normal.
The marketing teams unleashed a new wave of digital energy with a clear focus on getting closer to consumers and connecting with all stakeholders across the value chain despite challenges of no physical meetings.
True to its legacy of giving back to the society, the Aditya Birla Group committed over Rs. 500 crores towards COVID-19 relief measures. Living by the Group’s values, your Company reached out to over 1 million people during the lockdown. In addition to pledging support to the PM Cares Fund, your Company undertook several relief measures like making PPEs and masks available to the frontline doctors and medical staff, building isolation wards, activating beds and other medical infrastructure at hospitals, and supporting the local communities across the country. These initiatives were undertaken by the Group and your company under the aegis of the Aditya Birla Centre for Community Initiatives and Rural Development, led by Mrs. Rajashree Birla, your Director. Your Company’s community engagement initiatives reach out to a population of more than ~ 1 million spread over 298 villages. The focus of our CSR initiatives is on health care, education, sustainable livelihood, infrastructure, and social reform.
I would like to sincerely thank all the frontline warriors who have gone beyond their call of duty, in providing help and support to those impacted by the pandemic.
Let me now briefly update you on your Company’s performance during the financial year gone by and also give you my sense of how the year ahead could play out.
Despite being affected by the tumultuous last few weeks of FY20 due to the nationwide lockdown, your Company delivered a robust performance in the fiscal year.
For FY20, your Company’s consolidated revenue from operations stood at $11 bn (Rs. 77,625 Crore) and consolidated EBITDA stood at $ 2 bn (Rs. 13,846 Crore) for FY 2019-20.
On a standalone basis, revenue from operations for FY20, stood at $3 bn (Rs. 18,609 Crore) and standalone EBITDA stood at $ 400 mn (Rs. 2,836 Crore)
Your Company’s Viscose Staple Fibre (VSF) business reported yet another year of strong performance. During the year, VSF plants operated at full capacity across various locations. The VSF business reported best production and sales volume of 567 KT and 554 KT in FY20.
The VSF business developed in-house green technology third-generation speciality fibre, and achieved full capacity at the 16 KTPA plant at Kharach. This product has been very well received in the market.
The VSF business has proactively addressed the customer demand for sustainable products and has launched an eco-enhanced version of brand LIVA called LIVA Eco which has best-in-class sustainability credentials and unique end-to-end traceability. Liva Eco has been launched at premium pricing.
In our chemicals business, the production and sales volume of caustic soda nearly touched the one million-ton mark in FY20. The ECU realisations remained under pressure because of excess supply in domestic markets and increased imports of Caustic Soda. New supply should get consumed with increase in demand over the medium term. The demand for chlorine value added products improved by 10% on a year-on-year basis. This was driven, in part, by the increased thrust in health and hygiene products post COVID 19.
The urea business provided a steady stream of profitability to your company. There was a visible improvement in non-urea sales, also referred to as PURAK. This product alone contributed almost 25% of the overall fertilizer EBITDA for FY20.
The performance of the textiles and insulator business was impacted by market driven factors. However, both businesses generated significant amount of operating cash flows through very effective working capital management.
Your company derives significant value through its consolidating material subsidiaries, UltraTech Cement and Aditya Birla Capital.
UltraTech, as you may know, embarked on a string of domestic acquisitions in recent years and its global capacity is now 114.7 million tonnes per annum up from about 70 million tonnes just 3 years ago. Today, UltraTech is the 3rd largest cement manufacturer in the world, excluding China; and is the only Company to have a capacity of over 100 million tonnes in a single country, outside of China. UltraTech has successfully increased the capacity utilization of all the assets acquired and is on track to further improve their operational performance.
At Aditya Birla Capital, the overall lending book (NBFC and Housing Finance) stood at just under Rs. 60,000 Crore and the gross premium (across Life and Health Insurance) grew to Rs. 8,882 Crore. The Company’s retailisation strategy helped it to grow its active customer base to ~ 20 Million through 850+ branches and 2,00,000+ channel partners and several bank partners. Aditya Birla Capital has robust risk management frameworks and continues to focus on quality growth, while creating value across its businesses.
Based on your company’s performance and future outlook, your directors have recommended dividend of Rs. 4 per equity share of face value of Rs. 2/- each for FY20. This entails a cash outgo of Rs. 263 Crore.
Your Company has been a vanguard in driving sustainable business practices across its businesses. The viscose business has harnessed a 360-degree sustainability approach. It has taken a bold decision to set industry benchmarks and adopt standards even beyond the stipulated regulatory norms. For example, your Company has committed to adopt the most stringent European norms (referred to as EU Best Available Technology) at all its viscose fibre manufacturing sites by FY22. The chemicals business has also commissioned Zero Liquid Discharge plants at Ganjam and Rehla.
Your Company has a well-calibrated strategy of customer orientation, cost optimization and product development. Like I said earlier, I am confident, your Company will emerge stronger from this global crisis and maintain its long-term competitive advantage and will continue its unrelenting pursuit of enhancing shareholder value, and growth in earnings and revenues.
Given the uncertain business environment, Grasim’s current strategic focus is built on four pillars, that are broadly aligned with the company’s long-term strategic roadmap. These include demand creation through innovative products, cost rationalization, agility, and cash flow focus.
Noteworthy examples of this strategy, as demonstrated in the June Quarter, include tapping export markets when the domestic markets were under lockdown. Grasim's Liva brand has forayed into antimicrobial fiber. The fabric produced using the special fiber inherently possess antimicrobial properties.
The chemicals business witnessed an upsurge in the demand for Chlorine value-added products driven by disinfectants and hygiene-related products.
Across the businesses, our fixed costs have reduced by 35%, which amounts to savings of Rs. 256 crores compared to the FY20 quarterly average.
The company’s Capex plan for FY21 has been calibrated to Rs. 1,615 crore as of now. Your company has decided to continue the Vilayat VSF brownfield expansion with revised timelines.
Your company has initiated measures to optimize operations across plants, reduce fixed costs and conserve cash. Your company continues to maintain a very comfortable level of liquidity to navigate this uncertain business environment. The inherent financial strength, operational excellence, and diverse product portfolio with cement, financial services, viscose, chemicals, and other businesses makes your company well prepared to withstand temporary disruptions and sustain its leadership across its portfolio.
Dear Shareholders, on account of the pandemic, much has changed in the last 6 months. And there is more change in the air. After all, we can still not envisage all the changes COVID-19 will leave in its wake. But what will never change is your company’s commitment to good governance and sustainable growth. You can take my word for that.
On behalf of the Company’s Board, I convey our deep sense of gratitude to all our stakeholders, business associates, and the Central & State Governments for their constant support. The commitment of all our employees to the growth of our Company is invaluable. Finally, let me express my deepest gratitude to each one of you, our shareholders. I look forward to your continued trust, confidence, and support.