Hit by Covid-19 lockdown, Grasim puts capital expenditure for FY21 on hold

Aditya Birla group firm Grasim Industries has decided to put its entire capital expenditure for FY21 on hold, with demand for its products declining due to the extended lockdown.

Top company executives said the firm had earlier planned to invest about Rs 3,880 crore in the present financial year. “Looking at the situation — both due to the lockdown and liquidity position — we have kept all capex on hold. The cash outflow during the lockdown will not be significant, though some money will be spent to pay creditors, which was due in April and May,” they said.

Some of the company’s plants have been shut for the lockdown, and it has been incurring some costs for repair and maintenance, as well as for administration.

The company had liquidity of Rs 2,000 crore as of March — almost the same as the December quarter (Q3). Gross debt stood at Rs 4,856 crore in Q3, with net debt at Rs 2,585 crore.

The company had set an ambitious investment plan for FY21, with budgets decided across verticals. “Due to the Corona pandemic, our entire plan has turned upside down and we have to re-look the plans again,” executives said. They added that they would look at cutting costs across departments. “We are closely monitoring our costs and looking at different scenarios regarding the lockdown to monitor our costs. We will evaluate ways to optimise them, if required,” they said.

Another dimension of the company’s business continuity plan is to keep its supply chain and ensure there’s adequate material available in the pipeline. Besides investing in its own businesses like Viscose Staple Fibre or VSF, Grasim also holds stake in key Aditya Birla firms like Vodafone Idea, UltraTech, and Aditya Birla Capital.

The VSF business has been hit by both the lack in demand and production continuing in China despite the virus outbreak. Though the China plants are running at 40 per cent capacity, demand across the world has dipped on account of lockdowns announced by several countries. “The situation is fluid, and we have to wait and watch,” said a top executive.

European and other customers started cancelling orders only in the last 10-15 days, before which the demand was good.

Aditya Birla Capital will not require any capital allocation, the company clarified. On Voda Idea, the company said the situation has not changed, and there has been no approach made to Grasim to invest more into the telco. Last year, it had invested in Voda Idea’s rights issue, based on its entitlement as a shareholder. However, it lost heavily following the telco’s share price fall on the bourses.

Grasim has ruled out a buyback given its liquidity position, and would rather evaluate the situation after the lockdown is lifted, it said. There has been no proposal of a buyback yet, executives said.