The Global Economy
The world has been fighting the Covid-19 pandemic for more than a year now and thestruggle has had deleterious economic effects. In 2020 the global economy contracted by3.3% the largest contraction on record at least since World War II. Much of it wasconcentrated in the first half of our fiscal year FY21 as several countries enforcedstrict lockdowns. Economies bounced back - albeit at differentiated speeds - in subsequentquarters on the back of large fiscal stimulus packages especially in the developedcountries restocking demand after dilution of lockdowns and improved confidence levelsfollowing the start of vaccination programmes. As per the recent forecasts fromInternational Monetary Fund (IMF) the US and China are expected to record a strongrecovery in 2021 resulting in a net positive expansion of their economies over the 2019levels. These two engines of growth are expected to boost demand for exports from othercountries. Even the other two large economies the EU and Japan are expected to expand.
In response to the pandemic central banks resorted to strongly supportive monetarypolicies in most developed economies causing interest rates to go down to record lows. Atthe same time another consequence of this policy has been a surfeit of liquidity. Thathas led to
a strong rally in prices of many industrial commodities which has also been supportedby the evolving economic recovery stimulus-related demand expectations and certainsupply-side disruptions. This has caused inflationary pressures on the cost dynamic ofseveral manufacturing industries.
The latest IMF forecast suggests a strong 6% growth in global GDP in 2021. But theoccurrence of second and third waves of Covid in different parts of the world and reportsof virus mutations have created downside risks to the outlook of a strong growth rebound.Recovery remains uneven and uncertain with the extent of fiscal support and level ofvaccination being key differentiators of the short-term economic outlook across countries.
Indian economy which was firmly on the path of recovery in the second half of FY21was hit by a rather unexpectedly virulent second wave of Covid-19. That caused a severestrain on healthcare facilities in many parts of the country leading to localisedlockdowns and a fall in mobility to levels seen a year ago. This may lead to somereassessment of growth estimates for FY22.
As a silver lining disruptions to production and supply chains have been far lesssevere during the second wave than during the first wave. Vaccinations are picking uppace which would support faster normalisation of mobility levels and of related economicactivities. Continued accommodative monetary policy of the RBI and the expected increasein capex from the Government are factors that will support growth recovery. In additionglobal growth prospects provide us with exports as an additional strong driver of growth.
The longer-term prospects for the Indian economy continue to be robust. Variousinitiatives including privatisation of public sector enterprises monetisation of assetsimplementation of National Infrastructure Pipeline targeted investment incentives throughthe Production-Linked Incentives Scheme and the new Labour Code are likely to spur avirtuous cycle of investments and growth in the medium-term.
ABG in Perspective
Like for many other organisations the Covid crisis brought out challenges of manyforms. Economic impact and business disruptions apart many members of our extended family- our employees and their near ones our value chain partners our neighbourhoods - facedhealth emergencies. The pandemic also caused deep psychological scars as people had toadjust to new ways of living and working. Notwithstanding these challenges our employeeshave displayed the highest possible resilience in coping with personal concerns and yetstaying focused on the customers and the business. Our business results convey only asmall part of the story of our employee courage compassion community spirit and culturalstrength.
As the lockdowns took a firm grip on people's lives and constraints mounted in theearly part of the financial year our leadership teams rose to the occasion with robustplanning and continuous communication with people at all levels through the organisation.Personally it was energising for me to engage at scale with employees globally through aseries of digital townhalls that instilled confidence in employees and reinforced thepower of 'One ABG'. The 'Respond Recover and Re-imagine' framework underpinned severalnew initiatives. These included close coordination among HR teams across the Group unitsto respond to local-level challenges by leveraging the organisational resources and athrust on disseminating relevant information through all digital channels about theresources lined up to help the extended ABG family deal with the emergencies.
Covid warriors were trained and voluntary networks were formed to assist our employeesand their families in need. Preferential tie-ups with local hospitals and a centralcoordination centre with an external party were set up to provide special assistance toour employees through Doctors' network telemedicine and other COVID related healthassistance. Workplace health hygiene and Covid-appropriate behaviour remained the focusof our managers at all levels helping the organisation to stay ever vigilant. 'Test Treatand Trace' was the mantra of protection and well-being followed scrupulously.
Apart from focusing on health emergencies initiatives for mental agility andcontinuous learning were taken to maintain organisational morale. A learning programmechristened as 'Chairman's Invitation Series' was curated to bring the best insights on achanging world from the world's leading thought leaders. There was an increased thrust ononline education recognition and knowledge sharing sessions.
These well-rounded initiatives on the people front also helped our business performanceto bounce back strongly. The focus on customers and costs remained undiminished though theyear. Critical business processes such as new line commissioning new product launchesnew system and technology implementation- all happened seamlessly and presented a uniquehuman story of innovation and fortitude bringing alive the values of commitment andpassion. People learnt new skills and new behaviour at work while not being at office orat the workplace as one knows. People engagement team trust and Group values proved to bethe energy and the glue for our performance.
In the spirit of not letting a crisis go to waste our HR Teams globally collaboratedto create a long-term HR Strategy for the Group and individual businesses. This wasachieved even while working remotely; 150 of the HR leaders came together digitally over afour-month period to craft a coherent HR strategy to reflect both Group aspirations andthe business needs. Premised on creating an Avant Garde HR strategy the work focused onemployee experience and business productivity in a balanced mix with growth technologyand talent as other critical pillars. This HR strategy is under dissemination to variousstakeholders and an annual action agenda is being rolled out at all levels. This has
been a signature example of collaboration thought leadership and determined action -ingredients that usually make up most successful organisations.
Your Company's Performance
The pandemic induced shutdowns at the start of the fiscal year created an unprecedentedbusiness environment. Your Company gave primacy to the safety and well-being of itsemployees and local communities along with a clear focus on maintaining businesscontinuity.
Grasim's inherent dynamism and resilience cushioned by its strong balance sheetenabled the Company to navigate this disruption and accelerate the journey from revival torenewal. The sharp recovery in the operational performance was on account of yourCompany's steadfast commitment to its long-term strategies of customer orientationsustainability cost optimisation and R&D led product development.
Keeping in mind the long-term strategic intent of creating value for all shareholdersyour Company has identified paints as a new engine of growth. Decorative paints as anindustry witnessed double-digit growth rate for the last many years and it has achievedsignificant scale. In FY21 as part of the longterm strategic portfolio choice yourCompany also decided to monetise the fertilizer business.
On a Consolidated basis Grasim's Revenue for FY2020-21 stood at '76398 Crore andEBITDA at '15766 Crore.
The VSF business realigned its operations to the changing market dynamics in FY21.Demand for textile products was severely impacted in Q1FY21 as most global markets wereravaged by COVID-induced shutdowns. The market situation started improving from Q2FY21with the gradual reopening of various economies and with demand recovery picking pace. Thebusiness witnessed unprecedented volatility during FY21 as the capacity utilisation ratesdipped to low single-digit in Q1FY21 and scaled back to full utilisation level by Q4FY21.The relentless focus on Innovation Sustainability and Cost optimisation enabled thebusiness to weather the unprecedented disruption caused by the pandemic and emergestronger.
The Company has identified the potential of "Green Fibre" which is asolution to a sustainable future. Green Fibre credentials are based on the three keytenets of "Green Product" produced through "Green Technology"ensuring a "Green Ecosystem".
The business has made significant progress with the launch of a circular product - LivaReviva which is made using industrial cotton waste. The launch of Anti-microbial fibreand non- woven products under the brand name Birla Purocel-EcoFlush exemplifiessolution-oriented innovations and the Company's commitment to sustainability.
Sustainability is now at the core of every decision of the business. The concertedaction on this front is now getting due external recognition. In 2020 Grasim attained aprominent rank in the S&P Dow Jones Sustainability Indices (DJSI) among participating
companies in its sector. The VSF business has been ranked #1 Globally with 'Dark GreenShirt' in Canopy's Hot Button Report 2020 and was also the recipient of the 'GoldenPeacock Global Award for Sustainability' for the year 2020.
The VSF business has been working on achieving the EU-BAT norms in all its plants by2022. It is also in the process of setting up the first Zero Liquid Discharge plant forthe viscose fibre industry at its Nagda unit by 2021.
The pandemic presented an opportunity to relook at cost structures to drive efficiency.The business team has been able to significantly reduce the fixed cost and variable costduring the year.
The VSF business reported production and sales volume of 452 KT and 463 KTrespectively in FY21. The Revenue from VSF sales stood at '6965 Crore and EBITDA at'1187 Crore. Better product mix cost optimisation and recovery in the prices duringH2FY21 partially cushioned the dent caused by the weak operational performance on accountof the lockdowns during Q1FY21.
The operational performance of the Chemicals business was above par despiteCOVID-induced lockdowns which impacted plant operations briefly. The global demand forcaustic soda was impacted due to weakness in the demand from end-user industries likepaper and textile. Global caustic soda prices remained subdued during the year whilechlorine prices stayed strong. Domestic caustic soda prices maintained a weak trendinfluenced by weak global prices substantial capacity additions and continuous imports.Despite a delay owing to COVID-induced lockdowns the business is on the path to completeits capacity expansion program for Caustic soda and Chlorine VAPs in FY22. The businessendeavours to improve the percentage of Chlorine integration by increasing the VAPportfolio which fits into the long-term strategy of improving the rate of chlorineintegration to 40% by FY25 from 28% in FY21.
The performance of the Advanced Materials (Epoxy) business was robust driven by strongdemand from the end-user segment (Auto and Wind Power) and substantial improvement inrealisation. Witnessing a strong demand in the Advanced Materials business your Companyhas decided to double its capacity.
Improving the share of renewable energy in the overall power mix which achieves thetwin objective of cutting power costs and reducing emissions and setting up Zero LiquidDischarge plants are core to the Sustainability strategy.
The Net Revenue for FY21 stood at '4581 Crore and EBITDA
The Urea business reported an EBITDA of '222 Crore in FY21 a significant improvementfrom the previous year driven by better Purak sales and fixed cost optimisation. TheFertiliser Business divestment process is on course and expected to be completed in FY22after receipt of NCLT approvals for the Scheme of Arrangement amongst other pendingapprovals.
The performance of the Textiles business consisting of linen wool and premium cottonfabric was severely impacted by the lockdown with a weak demand environment. There was anoverall improvement in operational and financial performance from Q4FY21.
The performance of the Insulators business for FY21 improved driven by demand fromoverseas markets while the domestic demand remained subdued.
The importance of pulp JVs came to the fore this fiscal especially during periods ofsupply tightness coupled with runaway prices. These units cater to a significant portionof our pulp requirement and ensure consistency in the supply of prime quality pulp. Thefinancial performance of JVs improved during FY21 with the improvement in pulp pricesduring Q4FY21.
Your Company has been in the process of executing a capex plan for raising capacitiesin both the VSF and Chemical businesses and towards modernisation capex at various plants.Towards this capex plan the Company spent '1508 Crore in FY21 and is expected to furtherspend '2604 Crore in FY22 (standalone basis). This capex plan does not include the outlayfor the Paints business. The Board of your Company has approved an initial capex of '5000Crore for the Paints business. This amount will be invested over the next three years.
UltraTech Cement Ltd.
(a subsidiary of the Company)
The Indian Cement demand contracted by 10%-12% in FY21 given the economic standstillin H1FY21. However H2FY21 witnessed a steady demand recovery.
The uptick in demand for cement was driven by affordable housing projects andGovernment infrastructure projects like roads metro irrigation projects and others.
The cement demand growth in FY22 is expected to remain strong considering theGovernment's thrust on infrastructure and roads development housing and ruralinfrastructure.
UltraTech reported net revenues of '44239 Crore and EBITDA of '12302 Crore duringFY21.
UltraTech has approved a fresh capex of '5477 Crore towards increasing capacity by12.8 MTPA with a mix of brownfield and greenfield expansion in addition to a 6.7 MTPAcapacity expansion currently underway. Upon completion of the latest round of expansionUltraTech's capacity will grow to 136.25 MTPA reinforcing its position as thethird-largest cement company in the world outside of China.
Aditya Birla Capital Ltd.
(a subsidiary of the Company)
Aditya Birla Capital's consolidated revenue grew by 15% YoY to '19248 Crore and netprofit after minority interest grew by 22% YoY to '1127 Crore for FY21. The activecustomer base across the businesses increased to 24 million with a clear focus on retailgrowth across all the businesses. The diversified portfolio of products and servicesoffered by Aditya Birla Capital allows it to leverage broader opportunities in India'sfinancial services sector.
The Overall lending book (NBFC and Housing Finance) stood at '60558 Crore. For theNBFC business asset quality technological innovation and cost optimisation remain thekey focus areas for achieving growth.
The Life Insurance business reported a single-digit year on year growth in total grosspremium to '9775 Crore in FY21. The embedded value of the business increased to '6441Crore in FY21.
The Asset Management business reported domestic closing Assets Under Management (AAUM)of '281035433 Crore up 7% YoY.
The Gross written premium in the Health insurance business grew 49% YoY to '1301Crore.
Aditya Birla Renewables
The cumulative installed capacity of Aditya Birla Renewables stood at 502MW in FY21which has increased by 3x in the last two years. The share of group captive capacity stoodat 160 MW in FY21 which is likely to go up given our continuous focus on increasing theshare of renewable mix in each of our Group businesses. This cumulative installed capacityis expected to rise to 845MW by FY23.
The year-long response to the pandemic across the globe exhibited all that is nobleand uplifting in the human spirit. A spirit that was also in display in your Company'sactions and performance during the year.
Through this pandemic your Company's people and systems have been battle tested andeven better prepared to face any competitive challenge or serious external disruption. Ithas strengthened the bonds within opened better vistas of co-operation and convinced ourstakeholders that our people deliver - no matter what! That is our best assurance ofsustainability and continued collective prosperity.
Kumar Mangalam Birla