Aditya Birla Group likely to exit fertiliser business this year
According to a Business Standard report, out of the two final bids, a West Asia-based company is leading the race for the division, currently housed in Grasim Industries.
Aditya Birla Group is likely to exit the fertiliser business this year and two players have submitted final bids valuing the division at around Rs 3,000 crore, reported Business Standard.
According to the report, out of the two final bids, a West Asia-based company is leading the race for the division, currently housed in Grasim Industries.
Sources told the paper the the sale of the fertilizer business is a part of Chairman Kumar Mangalam Birla’s plan to exit all low-margin businesses of the group that did not scale up in the past few years.
The delayed payment from the government for the subsidized products added to the reasons that led the company to exit the business.
A former part of Aditya Birla Nuvo, Indo Gulf Fertilisers, which was merged with Grasim, reported a 13 percent year-on-year decline in both revenue and profit. The before interest and tax to Rs 2,165 crore and Rs 154 crore, respectively, in 2016-17.
In 2016-17, the company's revenue and profit before interest and tax was Rs 2,165 crore and Rs 154 crore, respectively.
According to the sources, the decision to exit from the fertiliser business was taken a year ago when Grasim decided to merge its operations with Aditya Birla Nuvo. Thus, as planned, the sale talks gained momentum after the merger.
A Birla spokesperson declined to comment.
The group had decided to exit the online retail business Aditya Birla Online Fashion (Abof) and textiles in the last quarter.
Grasim had also said in July that it would sell 100 percent stake in its subsidiary Grasim Bhiwani Textiles to the Donear group.
With the exit of Aditya Birla and the Tata Group, which exited the business by selling Tata Chemicals to Norway’s Yara Chemicals for Rs 2,670 crore in August last year, it seems like large corporates are exiting the fertilizer business.
In India, urea prices are controlled by the government. As the fertilizers are subsidised the government compensates the companies for the shortfall between cost and sale price.
However, Indian companies have complained that the refund of the subsidy takes several months that blocks the cash flow within a company.
Over the past few years, the fertiliser sector has slowed down. In FY15, inadequate budgetary provisions led to a further slow recovery of fertiliser subsidy that affected the profitability of the industry due to a steep rise in working capital, said the report.
Several manufacturers shut down their urea plants for a month or so every year as they do not find the government's policy on urea production beyond 100 percent quantity as viable.In FY15, Birla’s Indo Gulf had to shut the urea plant for 35 days. In the first quarter of FY18, it announced a plant shutdown.