Gujarat State Fertilizers & Chemicals (GSFC) recently received approvals for usage of Nylon 6 products from the National Highway Authority of India (NHAI) and the government. These new products will boost the company’s turnover, said VD Nanavaty, Senior VP-Finance & CFO of the company. Speaking to CNBC-TV18, Nanavaty says that the new products are under various stages of tests and governmental approvals. The company has put up Rs 15,000 crore for expansion purposes, he says, adding that various project sites like Dahej will come under this. The main issue is slow government approvals, he adds. GSFC is also focusing on improving its exports and will be concentrating on infrastructure-led countries like Africa and Sri Lanka. Below is the transcript of VD Nanavaty’s interview with CNBC-TV18's Mangalam Maloo and Reema Tendulkar.
Mangalam: We understand that you have received approvals for usage of your nylon-6 products coming in from National Highways Authority of India (NHAI) and the government. So, what are these products and what potential revenues can they bring to the company?
A: Those products are concrete reinforced fibre (CRF) and nylon reinforced fibre (PRF) and government is very stringent on these norms for using it in the highways and infrastructure projects. So, various tests are going on right now and approvals are at different stages in the ministry but once it comes through we expect a very good turnover from these products and we are also exploring the export market where countries like African countries and Sri Lanka those who are also undergoing a lot of infrastructure development those countries will also be importing these products. So, we expect a good market but right now difficult to put any numbers to it but we see a bright future for CRF and PRF.
Reema: You have lined up Rs 15,000 crore of investments over the next two years, how do you plan to raise this kind of money?
A: Right now the major investment that was planned in Dahej is the ammonia urea complex of almost Rs 5,000 crore and then we also had planned a caprolactam project at Dahej that was around Rs 4,000 crore for 1 lakh capacity. Those were the two major plans underway. But government is little slow on giving approvals for ammonia, urea project. Till now they have given approval for only one project in the country. So, that is going slow and with this crude oil prices substantially dived since last one year the caprolactam project is also under recheck because it should be viable at such a low price also. So, these are the projects which are very slow.
However, we have given contract for erecting melamine plant of 40,000 metric tonne. That is Rs 1,000 crore project at Baroda. So, work will start immediately on this and our work for expanding in BAP space is also going on at Sikka. That is also at around Rs 1,000 crore project. So, both are well on track and we will be taking some debt for both these products totalling around Rs 2,000 crore. But since as you know we are very comfortable on debt, almost zero debt company. So, this small debt will not create much problem for us.
Mangalam: But how are you planning to raise these funds, how much of this will be debt and how much of this will be through internal accruals?
A: Yes, so it will be a small amount of debt and internal accruals. It is a Rs 2,000 crore debt, not a big amount.
Reema: You recently entered into an agreement with a Canadian based Karnalyte Resources Inc (KRI) for mezzanine financing. Can you simplify this agreement for us what does it mean for GSFC?
A: In the North American market the lending rules are very tough. They don't go beyond 50:50 debt to equity ratio. So, in a project of USD 700 million raising USD 350 million in the subdued commodity market it is very difficult. So, we came out with lending from the Indian side. So, Indian bankers are ready to go for 75:25 debt to equity ratio. So, that reduces the equity requirement substantially. So, that is where we are going from the Indian lenders side and within equity also there is a two part, pure equity 50 percent and we will be going for mezzanine finance of 50 percent. So, around USD 90 million will be mezz finance of say, short durations, seven years or so and around another USD 90 million will be pure equity from the Canadian Stock Exchange and maybe from Indian Stock Exchange. The rest will be debt from the North American and US market.
Mangalam: Earlier you indicated that the outlook is fairly good as far as the orders are concerned. So, what is the revenue outlook that you have for the next fiscal?
A: We expect to close a little over Rs 6,000 crore this year and next year we plan to have aggressive BAP marketing. So, we will be selling more of fertiliser next year and we expect to clock in around Rs 7,500 crore turnover for FY16-17.
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