The group had finalised 2007 for taking all its major operations overseas. However, before venturing abroad, the group wanted to ensure that it would be either the market leader or a strong 'number two' in all its businesses in the Indian market.
To ensure this, the group speeded up its but major restructuring exercise, but a painless one, by exiting some business lines and regrouping others. While the restructuring exercise started in the late '90s, a major part of it was completed only recently. These include:
Says A Vellayan, the group's external relations director, "Nearly 95 per cent of our restructuring has been completed. What remains is just the minor work."
Time to go global With the reorganisation behind it, the various Murugappa Group companies are ready to step out in to global markets; part of the group's Rs880-crore capex programme includes overseas investments. (See: Murugappa Group to invest Rs880 crore)
On the drawing board is a major foray into China by two group companies - Carborundum Universal Limited (CUMI) and the Tube Investments of India Limited.
The Rs424-crore industrial abrasives manufacturer, CUMI, is expected to acquire a 51-per cent stake in a government-owned Chinese abrasives company. According to officials, partnering with the Chinese company would be mutually beneficial; while CUMI could supply normal abrasives, the Chinese company would supply super- abrasives (grinding wheels with diamonds). The investment in China is estimated at $7 million.
The entry into China is part of the Group's early strategy to enter the global markets with competitive products, Accordingly, the Chinese plant will cater to the global markets rather than import the raw materials to India to cut production costs here. At the moment CUMI imports some raw materials from China. With the proposed partnership, the company's raw material cost is expected to reduce even further.
Interestingly, CUMI had already started its international operations even while plans for the other companies were being chalked out. For CUMI, China is part of a strategy to increase its global footprint.
In February 2006 CUMI, through its Canadian subsidiary, acquired the Canadian $6 million Abrasives Enterprises Inc for Canadian $2.25 million. A manufacturer and convertor of coated abrasives and other abrasives products, Abrasives Enterprises is the third-largest in the North American floor sanding market and has been growing at over 20 per cent for the past three years.
Similarly, in December 2005 CUMI set up a 100-per cent subsidiary in UAE, targeting the Middle East market. It will initially have marketing operations and a manufacturing facility will be added later. The company has a marketing joint venture in Australia from which it earned Australian $7 million last year.
In addition CUMI's subsidiary Laserword has acquired an ITeS business in the US.
According to Vellayan, several new technology tie-ups are under way in abrasives and ceramics.
The other Murugappa group company that has firmed up its China plans is the Rs1,584- crore Tube Investments (TI). Says Vellayan, "TI will put up a 12,000-tonne per annum cold drawn welded (CDW) tube facility at the Suzhou Industrial Park 80km West of Shanghai in China. The Rs28-crore investment will be a standalone venture."
According to him, automobile manufacturers in China are moving towards CDW tubes from cold drawn seamless (CDS) tubes. The market potential is estimated at 2.5-lakh tpa. "There are several global auto manufacturers in China and we will be targetting them."
At the same time TI has been assiduously strengthening its existing relationships with customers like Delphi, Visteon, Dana Corporation, Paulsta, Suspa and others to prempt them from developing alternate supply Chinese sources since the CDW market is picking up.
Going global, thinking local
While the group is taking some of its business global, in the case of fertiliser business the international strategy seems to be "sowing overseas to reap in India".
As the inputs for fertiliser are being imported, the Group's strategy for its fertiliser businesses - Coromandel Fertilisers Limited and Godavari Fertilisers Limited - is to secure raw material tie-ups at a lower cost. This is imperative as the two companies together command nearly a 65-per cent of the market in Andhra Pradesh, 45 per cent in Orissa besides a significant presence in Tamil Nadu.
Last December the group entered Tunisia through a three-way joint venture. The group, through Coromandel Fertilisers, partnered with Gujarat State Fertilisers Limited and Groupe Chimique Tunisien, Tunisia, to float this venture in Tunisia to manufacture phosphoric acid, a critical raw material for making phosphatic fertilisers and di-ammonium phosphate (DAP). The total project cost is estimated to be around $180 million and is due for completion by 2008.
Interestingly in February 2005 Coromandel Fertilisers acquired a 2.5-per cent stake for Rs27 crore in Foskor Limited, a South African fertiliser company. The Indian company will also advise Foskor on operational issues to enable it to improve its financial performance.
A wholly-owned subsidiary of the South African development institution Industrial Development Corporation (IDC), Foskor is one of the largest producers of phosphoric acid in the world and exports large quantities of phosphoric acid to India. Coromandel Fertilisers buys around 2.5-lakh tpa of phosphoric acid from Foskor and the equity acquisition and consultancy assignment will strengthen the relationship between the two. Incidentally, Foskor holds 5-per cent stake in another Murugappa group company, Godavari Fertilisers Limited.
The Murugappa group's fertiliser business requires around 4.5-lakh tpa of phosphoric acid, which is expected to go up by 40 per cent in the next three years.
Based on the achievement of certain financial parameters, Coromandel Fertilisers will be allotted additional equity stake subject to a maximum of 16.5 per cent by Foskor. "The operational management has started and we have increased the value throughput. This is a three-year management contract and further stake enhancement will be decided later."
More international partnerships, in Africa and Middle East, are expected to be in the process, to tie-up sources for the supply of ammonia.