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Grasim Industries Ltd

BSE: 500300 | NSE: GRASIM ISIN: INE047A01013
Market Cap: [Rs.Cr.] 31,721.71 Face Value: [Rs.] 10
Industry: Textiles - Manmade

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Director's Report
DIRECTORS

TO THE SHAREHOLDERS OF GRASIM INDUSTRIES LIMITED

Dear Shareholders,

Your Directors take pleasure in presenting the 67th Annual Report and Audited Accounts of your Company for the year ended 31st March, 2014.

The Management Discussion and Analysis Section, forming part of the Annual Report, focuses on your Company's strategies for growth and the performance review of the businesses/operations in depth. So, we are providing only a brief overview of these matters in this Report.

STRATEGIC INITIATIVES

Your Company's strategic intent continues to be the strengthening of its leadership position in both the Viscose Staple Fibre (VSF) and Cement businesses. In this regard, significant progress has been made on its expansion/acquisition plans.

Expansion Projects

Your Company's expansion plan to increase VSF capacity from 334K TPA to 498K TPA is nearing completion. The 36,500 TPA Brownfield expansion at Harihar in Karnataka has been completed. Trial runs for Line 1 have commenced at the Greenfield project (120K TPA) at Vilayat in Gujarat from April 2014, to be followed by trial runs of Line 2 shortly. The other two lines for specialty fibre are expected to be commissioned in the 2nd quarter of the current year.

The Caustic Soda plant of 182,500 TPA capacity for backward integration for VSF plant at Vilayat has been commissioned in May 2013. The capacity utilisation of the new plant is being ramped up in a phased manner. Consequently, your Company now has the largest capacity of 452,500 TPA in Chlor-alkali segment in India.

As part of its strategy to increase its downstream value added products portfolio, a 51,500 TPA Epoxy plant at Vilayat in Gujarat, was commissioned in December 2013.

Acquisition of 4.8 Mn. TPA Cement Capacity in Gujarat

Your Company's subsidiary, UltraTech Cement Ltd. (UltraTech), entered into an agreement to acquire, by way of a demerger, the Gujarat Cement units (4.8 Mn. TPA) comprising of an integrated cement plant at Sewagram and a grinding unit at Wanakbori of Jaypee Cement Corporation Limited (JCCL). The transaction has received the requisite regulatory approvals from the Competition Commission of India, shareholders, creditors and the Hon'ble High Courts, and the Scheme is now subject to the approval of Securities and Exchange Board of India.

Capacity Expansion by UltraTech Cement

UltraTech is implementing capacity expansion projects at its plants in Chhattisgarh, Karnataka and Rajasthan. The Clinkerisation plants of 3.3 Mn. TPA, each at Raipur in Chhattisgarh and Malkhed in Karnataka, have already been commissioned along with the grinding capacity at Hotgi in Maharashtra (1.55 Mn. TPA), Malkhed in Karnataka (1.45 Mn. TPA) and Jharsuguda in Odisha (1.60 Mn. TPA).

The balance grinding facility of ~4.5 Mn. TPA of cement is slated to be commissioned in phases, in FY 14-15. Work on Aditya Cement expansion of 2.9 Mn. TPA at Shambhupura in Rajasthan, is on track and the capacity is expected to go onstream in FY 15-16.

On completion of all the expansions and the acquisition, UltraTech's cement capacity will increase to 70 Mn. TPA.

FINANCIAL PERFORMANCE

In the VSF business, globally the demand was healthy led by growth in Asian countries, particularly China. Despite the volume growth, the business environment continues to remain challenging. The demand supply imbalance and the liquidity crunch in China have impacted VSF prices in global markets. Your Company's sales volume increased by 9% with the enhanced capacity at Harihar plant. The decline in realisations was much lower compared to global trends, supported by rupee depreciation. A steep increase in pulp costs, due to the rupee depreciation and the increase in wood costs, led to a fall in EBIDTA margins.

In the Cement business, the industry witnessed sluggish demand, given the slowdown in economic growth leading to lower off take from infrastructure projects, real estate sector and capex cycle. The subdued demand and over-capacity resulted in a price squeeze. The year witnessed continuing pressure on input and logistics costs, because of the increase in railway freight and a continuous hike in diesel prices. Your Company's subsidiary, UltraTech's volume growth also remained subdued at 3%. Optimization of fuel mix and other initiatives helped in maintaining costs almost at the previous year levels. The decline in average realizations led to a drop in EBIDTA margins. UltraTech reported a net profit of Rs. 2,206 crore as compared to Rs. 2,678 crore in the previous year.

Despite the prevailing economic slowdown, Volumes have risen in all the businesses, viz., VSF, Chemical and Cement, driven by the commissioning of new capacities. While Revenue rose by 5% at Rs. 29,324 crore (Rs. 27,909 crore), Net Profit for the year was lower at Rs. 2,072 crore, vis-a-vis Rs. 2,500 crore (before exceptional item) in the last year.

(Rs. Crore)

Consolidated

Standalone

2013-14 2012-13 2013-14 2012-13
Revenue from Operations (Net) 29,324.04 27,909.34 5,603.50 5,255.01
Profit Before Interest, Depreciation/Amortisation and Tax (PBIDT) 5,491.02 6,543.12 1,246.12 1,522.75
Less: Finance Costs 447.32 324.14 41.52 39.09
Less: Depreciation and Amortisation 1,457.48 1,252.06 219.61 159.21
Profit Before Exceptional Item and Tax 3,586.22 4,966.92 984.99 1,324.45
Add: Exceptional Item - 204.43 - 204.43
Profit Before Tax 3,586.22 5,171.35 984.99 1,528.88
Tax Expense 734.79 1,467.21 89.00 302.89
Profit After Tax 2,851.43 3,704.14 895.99 1,225.99
Add: Share in Profit/(Loss) of Associates 102.87 73.65 - -
Less: Minority Interest 882.76 1,073.40 - -
Profit for the Year 2,071.54 2,704.39 895.99 1,225.99
Balance brought forward from Previous Year 788.09 778.77 1,549.40 662.34
Surplus Available for Appropriation 2,859.63 3,483.16 2,445.39 1,888.33
Appropriations:
- Reserve Fund 0.57 0.77 - -
- General Reserve 2,503.68 2,424.51 700.00 122.60
- Debenture Redemption Reserve (56.50) 9.36 - -
- Proposed Dividend 192.87 206.52 192.87 206.52
- Corporate Dividend Tax 49.43 51.75 7.48 9.81
- Share of Appropriation related to Associates 3.12 2.16 - -
- Balance carried to Balance Sheet 166.46 788.09 1,545.04 1,549.40
2,859.63 3,483.16 2,445.39 1,888.33

DIVIDEND

Your Directors have recommended a dividend of Rs. 21 per equity share. The dividend, if approved by the members, would involve a cash outflow of Rs. 200.35 crore (inclusive of Corporate Dividend Tax).

Equity shares as may be allotted upon the exercise of Options granted under the Employee Stock Option Schemes and out of the Share Capital Suspense before the Book Closure for payment of dividend will rank pari passu with the existing shares and shall also be entitled to receive the aforesaid dividend.

EMPLOYEE STOCK OPTION SCHEMES (ESOS)

Employee Stock Option Scheme 2006 (ESOS- 2006)

During the year:

- 11,201 Options were granted;

- 20,370 Options were vested out of the Options granted in the earlier years; and

- 50,438 shares were allotted upon exercise of Options by the concerned option holders.

Employee Stock Option Scheme 2013 (ESOS- 2013)

A new Employee Stock Option Scheme was formulated during the year, pursuant to the approval accorded by you at the last Annual General Meeting held on 17th August, 2013. A total of 1,37,384

Options and 32,985 Restricted Stock Units (RSUs) were granted under the said Scheme.

The details of Employee Stock Options/RSUs granted pursuant to ESOS-2006 and ESOS-2013, as also the other disclosures in compliance with Clause 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, are set out in Annexure "A" to this Report.

FINANCE

Your Company raised long-term rupee loan of Rs. 194 crore for financing its VSF expansion projects. Term loans aggregating Rs. 106 crore were repaid during the year.

Your Company has adequate liquidity and a strong Balance Sheet. CRISIL Limited (CRISIL) and Credit

Analysis & Research Limited (CARE) have reaffirmed the ratings of "CRISIL AAA/Stable" and "CARE AAA" respectively, for your Company's long-term borrowings and "CRISIL A1+" and "CARE A1+", respectively, for your Company's short-term borrowings.

AWARDS AND ACCOLADES

Some of the significant accolades earned by your Company during the year include:

• "Unnatha Suraksha Puraskara" from the National Safety Council, Karnataka chapter in recognition of Outstanding Safety Performance and Management Systems in Pulp, Fibre and Paper Products Category Industries during 2011-12: Harihar Division.

• "Best CSR Activist of the Year-2013" in the category of Large Scale Industry from the Federation of Madhya Pradesh Chambers of Commerce & Industry, Bhopal: Staple Fibre Division, Nagda.

• "SAMMAN PATRA" for remarkable contribution in the category of Customs in FY 2013-14 from the Government of India, Ministry of Finance, Department of Revenue, Indore: Staple Fibre Division, Nagda.

RESEARCH AND DEVELOPMENT

Significant progress was made during FY 2013-14 in building the technology capabilities, to address competitive market threats and begin laying the groundwork for significant profitable growth.

PULP AND FIBRE PLANTS

Programme Portfolio

Your Company's fibre and pulp sites have i mplemented a comprehensive quality improvement approach centred on instituting statistical process control and Six Sigma continuous improvement techniques. Process variation has reduced significantly at the lead sites and best practices are being shared to accelerate improvements across sites. A robust customer monitoring and feedback process is in place to assess site and line quality performance versus competition. It identifies specific areas for further improvement. Focused R&D and Six Sigma improvement projects are resolving chronic process and fibre finish issues. These advances are aimed at significantly enhancing our customers' satisfaction levels.

Reducing chemical material and energy requirements in the existing processes are underway. Strengthened technology networks across the fibre and pulp sites are accelerating the commercialization of these advances. Programmes exploring alternative fibre process concepts with superior environmental performance continue with the active engagement of external knowledge network partners.

In forestry R&D at Harihar and Laos, the high-skill Control Pollination (CP) technique was perfected to produce genetic material with desired traits like high volume and basic density, high cellulosic pulp yield and low energy consumption. A multi-disciplinary approach to create sustainable and eco-efficient forestry is ongoing. This includes programmes in genetic tree improvement, development of site specific silviculture best practices, integrated pest and disease management and the use of improved genetic material and management of genetic diversity at each site.

Enabling Capabilities

Your Company's Joint Venture, Domsjo's pulp R&D team is improving its fibre and process performance. The results to-date are being applied across the pulp production sites to help optimize performance along the integrated value chain.

The GRASIM Forestry Research Institute (GFRI) at Harihar has been strengthened and Tissue Culture (TC) protocols have been modified to match different genotypes, and species to improve efficiency of micro propagation process to contribute to better planting stocks for local wood supplies. The Birla Research Institute for Applied Sciences (for fibres) at Nagda is focused on accelerating improvements in new fibre production technologies. The Textile Research and Application Development Centre (TRADC) at Kharach has ushered novel applications for fibres to quicken growth and improve overall market position. The R&D expansion project at Aditya Birla Science & Technology Company Ltd. (ABSTCL), an associate of your Company at Taloja, is in place. It is contributing to scaling sophisticated laboratory and semi-works capabilities for fibre research. The construction of the semi-commercial scale Fibre Research Centre at Kharach is complete and a project portfolio has been developed which will contribute significantly to the fibre process and product R&D programmes in 2014 and beyond. These investments, along with significant increases in R&D resources and the growing analytical and research support available through the corporate R&D organisation at Taloja, are integral to your Company's growth.

The technology talent pool has been bolstered with the recruitment of talented R&D professionals with diverse backgrounds, capabilities and experience, along with exposure to the development of the programme management processes. A core team of R&D professionals is actively engaged in various technology programmes and initiatives. Importantly, external knowledge networks to complement internal capabilities are actively contributing to advanced technologies in the areas of cellulose pulp and novel new fibres.

We are pursuing systematic programme and intellectual property management processes and engaging key business stakeholders to ensure delivery of quantitative results. An organisation structure and associated personnel management system is in place to enable continued enhancement of the effectiveness and performance of the R&D function.

In summary, significant milestones have been achieved in the areas of programme portfolio development and execution, infrastructure project execution, staff recruiting and development, and the creation of the overall R&D function operating systems. Our Leadership is actively engaged in developing the initial contributions from this R&D capability and looks forward to its increasing impact across the Pulp and Fibre business in the future.

CHEMICAL BUSINESS

Your Company's allied Chemical business has set up a pilot scale plant based on Oxygen Depolarization Cathode (ODC) technology. With this, the energy consumption is lowered by approx. 30% as compared to conventional membrane cell technology. It is also planning to set up a pilot lab scale electrolyzer in collaboration with Uhde at ABSTCL, Taloja. This facility will provide it with an opportunity to run the electrolyzer at various current densities with varying electrolyte parameters which will help in optimizing the plant performance. The quality of brine is very critical for optimum performance of Membrane cell plant. It is proposed to install the Pilot brine plant at Nagda to study the conditions/parameters affecting the brine quality and incorporate the same learnings in the main plant to enhance its performance.

HUMAN RESOURCES

Your Company strives to foster a culture of high performance. Ongoing learning, aligning HR systems in line with global benchmarks, aligning rewards and recognitions with performance have enabled your Company sustain its reputation of being a meritocratic organisation.

The Group's Corporate Human Resources function continues to play an integral role in your Company's talent management programme.

CORPORATE GOVERNANCE

Your Directors reaffirm their continued commitment to good corporate governance practices. Your Company fully adheres to the standards set out by the Securities and Exchange Board of India for Corporate Governance practices and has implemented all of its stipulations.

As required by Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section on Corporate Governance together with a certificate from your Company's statutory auditors, forms part of this Annual Report.

BUSINESS RESPONSIBILITY REPORT

As per Clause 55 of the Listing Agreement with the Stock Exchanges, a separate section of Business Responsibility Report forms part of this Annual Report.

DIRECTORS' RESPONSIBILITY STATEMENT

As stipulated in Section 217(2AA) of the Companies Act, 1956, your Directors subscribe to the "Directors' Responsibility Statement" and confirm that:

i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) the accounting policies selected have been applied consistently and judgements, and estimates are made that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for that period;

iii) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities; and

iv) the annual accounts have been prepared on a going concern basis.

CONSOLIDATED FINANCIAL STATEMENTS AND RESULTS OF SUBSIDIARY COMPANIES

Consolidated Financial Statements have been prepared by your Company in accordance with the applicable Accounting Standards (AS-21, AS-23 and AS-27) issued by the Institute of Chartered Accountants of India and the provisions of the Listing Agreement with the Stock Exchanges. Together with the Auditors' Report, these form part of the Annual Report.

In terms of the General Circular of the Ministry of Corporate Affairs (MCA), Government of India, the copy of Balance Sheet, Statement of Profit and Loss, Directors' Report, Auditors' Report, etc., of the subsidiary companies is not attached with the Annual Report of the Company. The related information on the Annual Accounts of the subsidiary companies shall be made available to the shareholders of the Company and of the subsidiary companies, who shall seek such information at any point of time. The Annual Accounts of the subsidiary companies will also be kept for inspection by any shareholder at the Registered Office of the Company and that of the subsidiary companies concerned during business hours. The Statement pursuant to Section 212 of the Companies Act, 1956, containing the details of the Company's subsidiaries and the gist of the financial performance of the subsidiary companies forms part of the Consolidated Financial Statements of this Annual Report.

PARTICULARS AS PER SECTION 217 OF THE COMPANIES ACT, 1956

Information on Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo, stipulated under Section 217(1)(e) of the Companies Act, 1956, is set out in a separate statement. as Annexure "B", attached to this Report and forms part of it.

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are to be set out in the annexure to the Directors' Report. Having regard to the provisions of Section 219(1)(b)(iv) of the said Act, the Report and Accounts as set out therein are being sent to all members of the Company excluding the information about the employees. Any member, interested in obtaining such particulars, may write to the Company Secretary at the Registered Office of the Company.

DIRECTORS

Mrs. Rajashree Birla and Mr. D.D. Rathi, the NonExecutive Directors of your Company, retire from office by rotation in line with the provisions of the Companies Act, 2013, and, being eligible, have offered themselves for re-appointment.

INDEPENDENT DIRECTORS

Your Board has recommended re-appointment of Mr. Cyril Shroff as an Independent Director of your Company, pursuant to the provisions of Section 149 and applicable Rules and Schedule of the Companies Act, 2013.

Other Independent Directors on your Board, viz. Mr. M.L. Apte, Mr. B.V. Bhargava, Mr. R.C. Bhargava and Dr. Thomas M Connelly, continue in office as per the applicable provisions of the Companies Act, 2013.

Your Board has reviewed the declarations made by the said Independent Directors and is of the view that they meet the criteria of independence as provided in Section 149 of the Companies Act, 2013, and the Rules made thereunder, as also those prescribed under the Listing Agreement.

RE-APPOINTMENT OF MR. ADESH KUMAR GUPTA AS WHOLE-TIME DIRECTOR

The term of appointment of Mr. Adesh Kumar Gupta as a Whole-Time Director of the Company is expiring on 2nd October, 2014. The Board has re-appointed him as the Whole-Time Director for a further period of 5 years with effect from 3rd October, 2014. The approval of the members in the ensuing Annual General Meeting is being sought for his re-appointment.

Necessary resolutions seeking your approval to the appointments/re-appointments of the aforesaid Directors, as applicable, have been included in the Notice convening the ensuing Annual General Meeting of the Company. A brief resume of the aforesaid Directors, being appointed/re-appointed, has also been incorporated in the Notice of the ensuing Annual General Meeting.

AUDITORS

The Board, on the recommendation of the Audit Committee, has proposed that M/s. G.P. Kapadia & Co., Chartered Accountants, Mumbai, and M/s. Deloitte Haskins & Sells LLP, Chartered Accountants, Mumbai, be re-appointed as the Joint Statutory Auditors of the Company, to hold office from the conclusion of the ensuing Annual General Meeting till the conclusion of the next Annual General Meeting of the Company. M/s. G.P. Kapadia & Co., Chartered Accountants, Mumbai, and M/s. Deloitte Haskins & Sells LLP, Chartered Accountants, Mumbai, have forwarded their certificates to the Company, stating that their re-appointment, if made, will be within the limit specified in that behalf in Section 139(1) of the Companies Act, 2013.

The Board, on the recommendation of the Audit Committee, has also proposed that M/s. Vidyarthi & Sons, Chartered Accountants, Gwalior, be re-appointed as the Branch Auditors of Vikram Woollens, a Division of your Company, from the conclusion of the ensuing Annual General Meeting till the conclusion of the next Annual General Meeting of the Company.

Resolutions seeking your approval on these items have been included in the Notice of the ensuing Annual General Meeting.

The observations made in the Auditors' Report are self-explanatory, and, therefore, do not call for any further comments under Section 217(3) of the Companies Act, 1956.

COST AUDITORS

Your Directors have appointed M/s. R. Nanabhoy & Co., Mumbai, as the Cost Auditors to conduct the Cost Audit for the year 2014-15.

In accordance with the Cost Audit (Report) Rules, 2011, the Cost Audit Report of the Company for the financial year ended 31st March, 2013 was filed in XBRL on 22nd September, 2013 vide SRN No. S22430193 with the Ministry of Corporate Affairs, New Delhi.

APPRECIATION

Your Directors record their sincere appreciation of the Central and State Governments, banks, financial institutions, stakeholders and business associates for their whole-hearted support and co-operation.

Your Directors also place on record their deep appreciation of your Company's employees at all levels, for their contribution to its success.

For and on behalf of the Board

Kumar Mangalam Birla
Mumbai, 2nd May, 2014 Chairman
   
Futures & Options Quote
Expiry Date :
3,214.90    [80.15] ([2.43]%)
Instrument: FUTSTK
Expiry Date: 31-Jul-2014
Open Price: 3,272.70
Average Price: 3,252.07
No. of Contracts Traded: 3,363
Open Interest: 7,55,375
Underlying: GRASIM
Market Lot: 125
Previous Close: 3,214.90
Day's High | Low: 3,320.95 | 3,206.40
Turnover (Cr.): 136.71
Open Int. Change: -2,34,500 ([23.69]% )
Key Information

Key Executives:

Kumar Mangalam Birla , Chairman

Rajashree Birla , Director

M L Apte , Director

B V Bhargava , Director


Company Head Office / Quarters:

Birlagram,
,
Nagda,
Madhya Pradesh-456331
Phone : Madhya Pradesh-91-07366-246760/246766/256556 / Madhya Pradesh-
Fax : Madhya Pradesh-91-07366-244114/246024 / Madhya Pradesh-
E-mail : grasimshares@adityabirla.com
Web : http://www.grasim.com

Registrars:

Grasim Industries Ltd
P O Birlagram,Nagda, ,MP-456331

 
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