Aditya Birla group set to exit fertiliser business this year

The fertiliser division sale is part of Chairman Kumar Mangalam Birla’s plans to exit all low-margin businesses that have failed to scale up in the past few years.
The Aditya Birla group is set to exit the fertiliser business, with two players valuing the division at around Rs 3,000 crore. The group had decided to exit online retail and textiles in the last quarter.

According to sources, two players have submitted final bids with a West Asia-based company leading the race for the division, currently housed in Grasim Industries. The sale is part of Chairman Kumar Mangalam Birla’s plans to exit all low-margin businesses that have failed to scale up in the past few years. Besides, delayed payment from the Indian government for selling products at a subsidy was another key reason for the company’s interest to exit the business.

Indo Gulf Fertilisers, which was part of Aditya Birla Nuvo before its merger with Grasim, reported a 13 per cent year-on-year decline in both revenue and profit before interest and tax to Rs 2,165 crore and Rs 154 crore, respectively, in 2016-17. 

The decision to exit from the fertiliser business was taken after Grasim decided to merge its operations with Aditya Birla Nuvo last year. After ‘New Grasim’ and Aditya Birla Capital were listed, the sale talks gained momentum with a West Asian company making an aggressive bid, say insiders. 

A Birla spokesperson declined to comment.

In September, Aditya Birla group decided to exit the online business Aditya Birla Online Fashion (Abof), which it would shut this year. In July, Grasim had said it would sell 100 per cent stake in its subsidiary Grasim Bhiwani Textiles to the Donear group. 

In August 2016, the Tata group also exited the fertiliser business by selling Tata Chemicals to Norway’s Yara Chemicals for Rs 2,670 crore, in its bid to focus on new businesses. 

Large corporates are exiting the fertiliser business in India as urea prices are controlled by the government. Any shortfall between cost and sale price of a fertiliser company is compensated by the government as subsidy. But Indian companies have complained that the subsidy is given to them after a lag of several months, thus, blocking cash flow.

In the past few years, the fertiliser sector itself has also slowed down. In 2015 financial year, the industry witnessed slower recovery of fertiliser subsidy from the government due to inadequate budgetary provisions. This affected the profitability of the industry due to a steep rise in working capital. 

As government policy on urea production beyond 100 per cent quantity was not viable for manufacturers, a lot of them shut down plants for a month or so every year. For example, in FY15, Birla’s Indo Gulf had to shut the urea plant for 35 days starting February 27, 2015. Even in the first quarter of the current financial year, it announced a plant shutdown.

The Aditya Birla group has undergone a series of restructurings, with the group buying, selling and merging businesses at regular intervals. The group is currently in the process of merging its telecom business, Idea Cellular, with Vodafone India, thus, becoming India’s No 1 wireless telephony company, with over 42 per cent of the market share.  

Another group company, Hindalco, is looking at the option to bid for Aleris Corp in the US for $2.5 billion, but only if an earlier deal between Aleris and a Chinese firm falls through.

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