Aditya Birla group ready to sell fertiliser arm

Grasim, which merged Aditya Birla Nuvo's operations with itself, to exit all low-margin businesses

The stage is set for the sale of the fertiliser business of Aditya Birla group company Grasim, which has merged Aditya Birla Nuvo’s operations with itself.

Bankers said two companies had shown interest in buying the business, which was likely to fetch Grasim close to Rs 3,000 crore. The fertiliser industry depends on government subsidies that are released a couple of quarters late, affecting margins.  

A Birla group source said the sale was line with the group’s policy of consolidation and focus on core businesses.

The fertiliser business, then housed with Aditya Birla Nuvo, earned Rs 2,498 crore in 2015-16 and its earnings before interest, tax, depreciation and amortisation were Rs 178 crore. In 2016-17, sales were Rs 2,164 crore and EBITDA Rs 153 crore.

The consolidation of businesses has enthused investors with Grasim’s market value going up by Rs 28,000 crore, or 49%, since January against a 20.3% rise in the Sensex. The Grasim share closed at Rs 1,287 on the BSE on Thursday. Trading in Aditya Birla Nuvo shares has been suspended pending the merger. The stock has climbed 47% since January.

Apart from the fertiliser business sale, Grasim is also ready to list its financial services business by mid-August. The business has received a Rs 700 crore investment from Premji Invest, according it a valuation of Rs 32,000 crore.

Infographic

The new Grasim will have EBITDA of Rs 12,259 crore and a net profit after tax and minority interest of Rs 4,076 crore as of March. Its businesses will include cement, VSF and caustic soda, and it will have a holding stake in the merged Idea-Vodafone.

Tata Chemicals had last August sold its urea plant in Babrala, Uttar Pradesh, to Norway’s Yara International for Rs 2,670 crore. Tata Chemicals has retained its Haldia plant and brands.

According to an analysis by SBI, the fertiliser industry is facing threats from cheap imports from China, Iran and Oman. Indian companies are reducing their investments because the government pays the fertiliser subsidy to them 6-12 months after the sale. Fertiliser manufacturers have large working capital requirements that add to their costs along with a longer cash conversion cycle.