Implementation of swadeshi policies have started benefitting, says Vellayan

Also says, better performance, investor confidence in India & a strong rupee have helped businesses

The year 2016-17 was the best for Murugappa Group, with a $8-billion market capitalisation -- 34 per cent growth over the previous year -- the highest-ever EBITDA of Rs 4,065 crore, and a turnover of Rs 30,023 crore (Rs 29,395 crore in 2015-16).

In an interview with Business Standard, Group's Executive Chairman A Vellayan tells T E Narasimhan that the group's relative competitiveness, aided by Centre's policy changes, have helped the company. Going forward, as part of de-reisking strategy, Coromandel International, which brings a major chunk of revenue, would reduce its dependency on subsidy business. Edited excerpts: 
 

What are the key factors that helped the firm in 2016-17?  

Better performance, investor confidence in India and a strong rupee have helped some of the businesses, especially Tube Investment, Chola Finance and Coromandel International. The performance was aided by positive policy environment, which increased the capacity utilisation to around 75 per cent from 60 per cent and is expected to increase to 85-90 per cent by the end of 2017.

Which key policy decisions of the Centre helped the group?

In the agriculture sector, there clearly were many positives.
 

In sugar, after challenging years, last year ended on a positive note. A number of measures taken by the Centre, including removal of excise duty on molasses and timely import of raw sugar, helped the business to post a profit after tax of Rs 302 crore, against a loss of Rs 135 crore the previous year.

The government’s timely market intervention did not let the sugar price increase substantially and it also ensured that the industry and farmers were not affected. For the sugar sector, policy payout was absolutely perfect, both from the industry and farmers. 

Will Coromandel International look at more non-subsidy-related areas as part of its de-risking strategy, considering that subsidy delays and issues are yet to be addressed fully?

In Coromandel, 50 per cent of the profitability will come only from the subsidy business in the next three years, compared with 75 per cent currently. We have plans in place for that and are making investments in that direction.
 

The crop protection business is being developed aggresively. It is followed by our retail and specialty nutrition business. All three businesses gives a higher EBITDA of 20-25 per cent.

Now that the environment is good, will you start investing? How is the situation in Tamil Nadu?

The plan will be finalised by the end of 2017. As far as Tamil Nadu is concerned, business and profit from the state have decreased in last five years. As part of the de-risking strategy, the group expanded its operations to Karnataka, Andhra Pradesh, Gujarat and West Bengal.

Political uncertainty and the ease of doing business are challenging. Tamil Nadu is in a confused state and things need to improve.
 

Are you happy with GST? How will it help?

Right now, input GST is more than the output, so there is a mismatch. That needs to be paid back. We are hoping that agriculture will also be treated like exports, so that we are not burdened in the long run. We have already pointed out to them immediately. Hopefully, we will find a way out.

The implementation of GST would eke out unorganised players, who were hurting the trade by supplying substandard materials. These steps will help the government save Rs 20,000 crore in subsidy payouts.
 

Any misses by the Modi government?

In the direct benefits transfer (DBT), it could have done better by involving top-notch IT companies for back-end support. They should not leave the IT backup to government organisations. If the commerce ministry and other ministries could take IT firms' support, so can the fertiliser ministry.

Phosphatic fertilisers are import-dependent. We fine at present as the rupee is strong, but have in the past faced problems when the currency has been volatile or weak. Earlier, the cost of foreign exchange cover for Indian importers was very high -- at one point, it was 8-9 per cent before being reduced to 6-7 per cent, compared with 3-3.5 per cent globally. Only SBI and a few other banks are providing the cover at present. They need to see how to facilitate that.

Subsidy payments are still pending. The overall interest cost is accounting for a large part of the cost. If that can be handled in a more smooth way, it will be better.
 

In the phosphatic fertiliser segment, subsidy linkage remains to be done. It is an announced policy that payment will be made in seven days.

If the government follows the swadeshi policy, it will help the industry.