Grasim Industries, the flagship of the Aditya Birla group, has decided to hive off its ailing viscose staple fibre (VSF) unit in Mavoor near Kozhikode, Kerala, to a separate company.
The new company, Moonlight Canfab India, is floated by a group of independent investors.
As part of the scheme, submitted to the Kerala government for approval, Grasim is likely to pick up a stake in the company.
The 1,700-odd workers in the unit will be given the option to either join the new company or take a voluntary retirement scheme, senior officials of Grasim said.
The unit has been a major drag on Grasim's bottomline with the company forced to absorb losses of around Rs 39 crore on an annualised basis. With the hive-off of the division, the amount saved will add to Grasim's bottomline.
The Mavoor unit has been grappling with environment-related problems for many years now, and has remained closed since May last year. Grasim has attributed poor availability of committed quantities of quality wood from the Kerala government, and increasing dependence on heterogeneous wood, which resulted in a much higher cost of production.
The VSF business has been giving Grasim operating margins of 32 per cent, the highest from any of its other existing businesses.
The company commands a 90 per cent plus capacity in VSF in India, and a 13 per cent market share worldwide. The business contributed 39 per cent of Grasim's turnover last fiscal.
However, as the business has matured it is unlikely to allow it to grow at anything more than 5-6 per cent per year, senior company officials said.
Because of the threat it has been facing from polyester staple fibre, the company has been working on greater penetration and application development to widen the reach of the product.
Besides, there is also a threat from steadily rising prices of rayon grade wood pulp, the key raw material, which is likely to squeeze its margins.
Global pulp prices have shot up to $750 a tonne from $500 a tonne, and is likely to hover at this level for some time, which will squeeze margins.
