Murugappa Grp to up capacity in fertiliser, sugar companies

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Murugappa Grp to up capacity in fertiliser, sugar companies

A Vellayan, Executive Chairman of Murugappa Group joins CNBC-TV18 to talk about the group’s companies and the headways they have made.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Coromandel Int See previous management interviews See what other Experts & Brokerages are saying about Coromandel Int Coromandel Int BSE | NSE 29/05/12 Are Mutual Funds betting on Coromandel Int? Other Stocks in this news Cholamandalam Investment and Finance Company | EID Parry (India) |

A Vellayan, Executive Chairman of Murugappa Group joins CNBC-TV18 to talk about the Group's companies and the headways they have made. Coromandel International, the flagship company, is expected to push up fertilizer capacity to 4 million tonne in FY13, Vellayan says. The management expects revenue accrual from fertiliser and non-fertiliser businesses to pare 50:50 in three years time. Margins for the company will be capped in the near-term even as subsidy rates are up since expensive raw material costs offset the possible profit, he says.

As for EID Parry, Murugappa Group is looking at increasing capacity, not only on the sugar side, but also at the cogeneration and distillary plants. Vellayan strongly roots for decontrol of the sector and urges the government to start work on it in the next 6-8 months when there is excess in the market. 

Meanwhile, Cholamandalam Investment and Finance Company will focus on vehicle finance and home equity, going ahead, Vellayan says.

Below is the verbatim transcript. Also watch the accompanying video.

Q: Starting with your flagship Coromandel International , Nutrient-Based Subsidy prices are out for FY12. Do you think the higher prices augur well for your per tonne margins for this year or have raw materials gone up to an extent where you don't see much improvement in margins per se?

A: The margins will be maintained. The agreement of the industry with the government is that we will maintain margins so the price increase only reflects the increase in the raw material cost. We don't expect to increase margins by increasing prices; our extra throughput and extra efficiency will hopefully give us a marginal increase in our margins.

Q: What exactly is the kind of growth exponentially that you expect to see on Coromandel International given the kind of moves you have made on the inorganic front?

A: Going forward, we look to 20-25% CAGR over the next three-five years. Part of it will be backward and forward integration. Backward in terms of raw material, forward in terms of retail, and some inorganic, in terms of adding on like pesticides, drip irrigation, water soluble and farm mechanization.

Q: Will these potential acquisitions be something that you will look at within the domestic ambit i.e. within India or you also looking at overseas opportunities. How will Coromandel International expand?

A: On backward integration, it will be overseas because there is no raw material that we use which has resources within India. We are talking about phosphate; phosphoric acid, potash and gas. Within India, we look for distribution reach, farm mechanization and drip irrigation. It's a combination which is necessitated by availability of raw material abroad and our addressable market being Andhra Pradesh, southern Maharashtra, northern Karnataka and Tamil Nadu.

Also read: Cabinet to take final call on NBS for urea, says Fertiliser Secy

Q: The exciting part of your business in Coromandel for a large number of your investors is the non-fertilizer part. By when do you expect the non-fertilizer to grab a lion's share in terms of contribution to revenues and more importantly, to operating profits?

A: The fertiliser part is also growing. By this time next year, we will have capacity to make 4 million (units). So that's up 25%. It's a catch up game. We would like to have 50-50 split between fertilizer and non-fertilizer by the next three years. However, as we move along things could change.

Q: What about EID Parry? Income fell a bit short of expectations in the last quarter. What is your outlook for the sugar business and how much co-gen and by-products might cushion those numbers at EID Parry ?

A: Sugar has had a difficult time and we have chosen to make some acquisitions during this period. That's what we have done in the past too and we will continue to do as well. However, I reckon that it will take another year before we start seeing all the benefits of the integration between what is happening in Andhra Pradesh and Karnataka with our main stay operations in Tamil Nadu. We are long-term players and we will increase capacities in sugar in all the plants that we have acquired, not only in the sugar side, but also in cogen and distillery. Ultimately, it's a cyclical industry as well, but within a year, we will be up to speed.

Q: How do you think the year ahead will shape up for sugar stocks in terms of realization? The market perceives this as being a down year for the industry.

A: One of the problems we have had is that the ministry in Delhi does not have a clear policy in terms of imports or exports, and also in terms of how they control sugar. My plea to them is to work on a total decontrol of this sector over the next 6-8 months. The best time to do it is when there is an excess in the market. Industry after industry has thrived by decontrol -- cement, fertiliser and telecom. So I think if the government decontrols this, there will be excess capacity setup for over a time but it will even out, three-five years from now. The big efficient players and integrated players will survive and those who have to consolidate will consolidate. If there is too much of interference in terms of levy and quota and duty stops, then, people won't be clear about making investments. People are currently not clear about the future and that is what is plaguing the industry.

Q: With regard to Cholamandalam Investment and Finance Company, some of the segments like distribution, asset management, equities have not been firing the way you would want it to. How much of a scale up do you see in FY12?

A: The main action is going to be in the area of vehicle finance and home equity. The company has just entered the gold loan business. We are setting up 45 branches. We are marginal players in the other areas and yes, we have not got our act completely together. We are introspecting the positioning of the company. Our philosophy has been that any sector that we enter, we try to fare among the top five players in India or at least, the top two regionally. Unless we are able to get there, I won't be satisfied.