Grasim sells Gwalior unit to Melodeon

Mumbai: The board of directors of Grasim Industries has approved the divesting of its loss-making fabric manufacturing operations at Gwalior to Melodeon Exports and its associates, who are textile majors, as a going concern.

The Gwalior unit, with a book value of Rs 150 million, will be sold for a negative consideration of Rs 150 million. The new management will provide continued employment to all the employees of the plant, a company release said.

Given the pressures faced by the textile sector as a whole, the challenging market environment in the suitings sector, aggressive competition and operational issues, Grasim had undertaken an extensive techno-commercial evaluation of both of its units at Gwalior and Bhiwani.

Consequently, Grasim will now manufacture both its brands Grasim and Graviera under a single location at Bhiwani. This will help considerably improve the competitive position of its fabric business in terms of economies of scale and operations.

Says Vikram Rao, the group executive president responsible for the fabric and apparel sector: "Consolidating fabric manufacturing operations at one location is a strategic step to bring in better synergies, bolster operational efficiencies and ensure the profitability of this business."

Both Grasim and Graviera, along with their entire range (Uncrushables, Acquasoft, Finesse, Safari, Coolers, E-stretch and All Seasons), will continue to be manufactured and marketed from Bhiwani, says Rao. "And a slew of other innovative fabrics (the Ice Touch range and Purista Collection) will be launched soon."

Last year, the fabric business saw its sales volume growing, though average realisations took a plunge, and the turnover increased only by 1 per cent to Rs 165 crore. Synthetic yarn saw sales volumes declining by 7 per cent, while average realisations improved by 4 per cent. The net turnover remained unchanged at Rs 109 crore. Worsted yarn sales volumes saw a 4-per cent increase, while average realisations improved by 7 per cent. The net turnover was up 12 per cent at Rs 33 crore.

The performance of the textiles division was subdued. On total revenues of Rs 306 crore, its operating margins were negative at 7 per cent. This was before providing for the VRS costs, which would increase the loss of this division further. The fabrics business has been under pressure due to an intense price competition and the inflow of spurious materials and increased cheaper imports. Lower fabric realisations, higher promotional charges and a sharp rise in input costs resulted in dragging the operating margins of this division from 8 per cent to -7 per cent.

Grasim will now focus on an improved market-share and strengthening the distribution network. On these lines, it re-launched its flagship brands recently. It will move up the value-chain to ensure a higher realisation and to overcome competition. It also intends to improve efficiencies by downsizing the weaving section and rightsizing the workforce.