To the Shareholders
India's medium-term growth prospects continue to be robust.Significant reforms undertaken in the recent years such as GST and insolvency code wouldraise India's growth potential in the coming years amplifying the effect of thelong-term structural cornerstones of the Indian growth story such as demography andurbanization.
The global economy recorded a healthy growth of 3.6% in 2018. Duringthe second half of the year however the global economy lost some momentum mainly onaccount of the increased trade frictions between the US and China and the tightening offinancial conditions. International Monetary Fund (IMF) expects growth to decelerate to3.3% in 2019 and its projections suggest that all three major engines of the globaleconomy viz. US China and Euro area are likely to decelerate in 2019. On the positiveside however IMF expects world economic output to recover and grow at 3.6% in 2020.
Of late there have been a few growth-supportive factors such as theannouncement of economic stimulus in China and halt to the process of monetary policytightening in developed countries. But the business sentiment has become somewhat cloudedwith challenges arising from the apparent setback to the US-China trade talks the spreadof trade frictions to technology sectors and the increased intermingling of economicpolicies. These challenges signal that global commodity prices could be under pressure.
Indian economy exhibited mixed record in the just concluded fiscal. GDPgrowth slowed from 7.2% in FY18 to 6.8% in FY19. Sub-par rainfall in 2018 tight financialconditions faced by the non-banking financial sector and moderation of external demandwere the key challenges faced by the economy. Consumption growth declined during thesecond half of the year but there were some signs of revival in the investment cycle asthe rate of gross fixed capital formation improved from 31.4% of GDP in FY18 to 32.3% inFY19.
Macroeconomic stability indicators broadly maintained their health. Lowinflation has created the space for monetary policy easing which will also help supportgrowth revival. The fiscal deficit target for FY19 was adhered to despite a shortfall intax revenues. While the current account deficit was high at 2.6% of GDP during the firstthree quarters of FY19 the softness in international oil prices portends its narrowing inthe coming quarters. Following the resounding political mandate for the ruling Governmentexpectations of further economic reforms and impetus to large infrastructure investmentshave been reinforced. These are reflected in strong inflows in the capital market takingequity indices to record levels in the weeks following the general elections.
India's medium-term growth prospects continue to be robust.Significant reforms undertaken in the recent years such as GST and insolvency code wouldraise India's growth potential in the coming years amplifying the effect of thelong-term structural cornerstones of the Indian growth story such as demography andurbanization. In the near-term however uncertainty over the forthcoming monsoon seasonand the heightened global risks present headwinds for FY20. Accordingly the outlook forthe Indian economy in FY20 is one of cautious optimism at this juncture.
Your Company's Performance
Your company has a storied legacy of business transformation over theyears. Grasim's bold bets to create additional capacity and re-imagine businessmodels have led to another year of very strong performance. On a Consolidated basisRevenue for FY2018-19 stood at Rs 72965 Crore and EBITDA at Rs 10883 Crore.
The Viscose business reported another year of exceptional performanceas reflected in operational and financial numbers contributed by Viscose Staple Fibre(VSF) as well as Viscose Filament Yarn (VFY). The Company's strong thrust onsustainability is demonstrated by the substantial investments we have committed towardsthe same.
The tremendous success of our brand "LIVA" can be attributedto our relentless focus on customer centricity over the years. "LIVA" which waspredominantly a women's apparel brand has been extended to the home textile segmentalso. The launch of Livaeco' as an eco-enhanced variant ofLiva' is a step towards giving further boost to our sustainabilitycredentials while retaining the fashion quotient of the brand.
The business is also focused on capacity creation. The capacityexpansion at Vilayat plant is progressing well; post expansion (FY21) it will be thesingle largest location plant of VSF in Asia (Ex-China) [The total VSF capacity will getenhanced to 788KT from 566KT].
Viscose Net Revenue grew by 23% YoY to Rs 10325 Crore in FY19. EBITDArose to Rs 2052 Crore up 22% YoY.
The VSF business reported its best ever production and sales volume of541KT in FY19 led by capacity debottlenecking. The share of domestic sales in the overallsales rose to 86% in Q4FY19 from 83% in the corresponding quarter of the previous fiscal.
Grasim's Chemicals business witnessed a remarkable operational andfinancial performance in FY19. The Caustic Soda sales surpassed the one-million-ton markin FY19 a first in the country by any company. The business is in a transformationalstage and we have a razor- sharp focus on expanding our share of value added products inthe overall portfolio. In FY19 we have launched new valued added products to cater to theneeds of the food plasticizer sanitizer and water treatment business segments.
Sustainability has been a core focus area for the business. Waterconservation measures through reduction recycle and reuse have been initiated in all theunits.
The Net Revenue for FY19 stood at Rs 6436 Crore up by 29% YoY andEBITDA at Rs 1827 Crore up by 40% YoY driven by higher sales volume and betterrealization.
Your company is in the process of executing its stated capacityexpansion plans that will increase capacity across multiple locations from 1147KTPA to 1457 KTPA. The acquisition of the Chlor-Alkali business of KPR Industries for Rs253 Crore during the Q4 FY19 is aimed at strengthening the operations on the east coast ofIndia a key consumption hub.
Pulp & Fibre JVs
p >Your Company's Joint Venture pulp units in Canada and Swedencontinue to bring enormous strategic value to the business. These units cater to asignificant portion of our pulp requirement and ensure consistency in the supply of primequality pulp.
The operational performance of the fertiliser business wassteady.
The linen business has a created a strong foothold in the Indianmarket; it enjoys 37% market share in the linen yarn segment and 45% market share in thelinen fabric segment. During the year the Company also acquired 100% stake in SoktasIndia Private Limited as part of its strategy to strengthen its leadership in the linenfabric market in India.
The overall demand in the Indian Insulator market remained subdued.
Your Company's leadership position in the Viscose and Chemicalssegments will get further strengthened by the expansion plans under implementation.Simultaneously continued focus on enhancing share of value added products acrossbusinesses will lead to better quality of earnings. I believe going forward Grasim willcontinue its unrelenting pursuit of enhancing shareholder value and growth in earningsand revenues.
The Aditya Birla Group: In Perspective
The Aditya Birla Group in many ways is a proxy for a Rising Indiagiven the diversified nature of our businesses.
The year 2018-19 has been one of strategic decisions and partnerships;with many transformational business transactions: Vodafone-Idea merger purchase of BinaniCement acquisition of Aleris in Metals and Sktas in Textiles. We have demonstrated thecourage to think mega scale to act decisively and to be calm in a volatile and changingenvironment. We have reaffirmed the commitment and trust that we can reinvent ourselvesand be game changers in the industry. Consequently we are globally the thirdlargest cement company (outside of China) and among the top 3 telecom players inthe world. The Aditya Birla Group close the year with revenues of US $ 48.3 billionand an EBIDTA of US $ 6.1 billion.
We believe our people and people processes give us the definitive edgeto manage scale and yet remain nimble to embrace change proactively.
On the people front I am delighted to share that our robust peopleprocesses that have been the bedrock of our success over the years continue to evolve andstay contemporary. Let me give you a flavour of what we have accomplished and howit is making a difference.
As a Group we continue to be deeply invested in our talent pipelineacross levels. At one level we have on-boarded over 200 fresh recruits from topengineering and management institutes for premier trainee programs and at the other endwe are actively building an internal talent pipeline in our businesses. Our Employee ValueProposition of A World Of Opportunities' is truly coming alive with thiseclectic mix of experienced and young leaders. We have developed a robust leadershippipeline with a healthy ratio of 1:1 identified successors for more than 300 leadershiproles across the Group.
Gyanodaya the Aditya Birla Group Centre for Leadership Developmentcontinues to build curiosity for new learning self-reflection and coaching in existingand future leaders. Broad-based leadership programs like Chairman Series brought 300 topleaders across the globe together on marketing finance and strategy and built cohesionand cross-functional appreciation.
Functional Academies have been established in 5 distinct areas: HumanResources Manufacturing Sales / Marketing and Customer Centricity InformationTechnology and Finance to develop cutting edge functional capabilities in these areas.Over the past three years over 5000 employees have refreshed their skills therebyenhancing the functional design and experience across the Group.
ABG Core Conclave of middle managers across businesses enabled 3000managers and business leaders to share nuances and have candid conversations on missedopportunities and challenges ahead. This unique platform reinforced the One ABG connectbrought new perspectives and gave me a first-hand feel of the excitement passion andcommitment of our vibrant next generation leaders.
Businesses have adopted new areas like Robotic Process AutomationArtificial Intelligence Machine Learning Analytics Design thinking. They areexperimenting with the same in manufacturing processes servicing customers logisticsenhancing the agility of the business and turnaround times dramatically.
I believe the real test of HR processes lies in advancing businessoutcomes and we have demonstrated a track record of doing just that. Greenfield projectswere commissioned at earlier than planned time and at a lower cost acquired units werere-branded and recommissioned in days instead of months earlier. While saving preciouscapital and related resources these initiatives inspire confidence within theorganization and in the ecosystem.
The Aditya Birla Group over the years has institutionalized bestpractices that have led to efficiency safety sustainability and stronger Businesses. Wehave systematically got the customer to the centre of our Business discussions. As wecontinue to strive on this front we need to get closer to the end consumer and innovatecontinuously to ensure a faster growth trajectory. With this in mind we have constitutedthe Central Innovation Team. This team will not only build the innovation framework andpipeline but also get an outside-in perspective to our Businesses. This team works closelywith Business R&D and Marketing teams Technology talent and a strong team of Datascientists. We are also in the process of evaluating partnerships with Global Universitiesand Start-ups relevant to the sectors in which we operate. The intent is to shift theCentre of gravity of the Company closer to the consumer.
We are determined to innovate. We are determined to grow.
I am excited with the speed and precision with which we aretransforming ourselves to be future-focused while remaining steadfast to our time-testedvalues. We move into 2019 with the confidence that we have the right capabilities notjust to seize but pounce on every opportunity that comes our way.
The best is yet to come. Thank you for your continuing support.
Kumar Mangalam Birla