After a challenging year in 2015-16, diversified industrial conglomerate Murugappa Group is confident of recording 20 per cent growth this year aided by an upswing across its major business verticals, including financial services, agriculture and engineering.
The group reported gross sales of Rs.29,470 crore in 2015-16, a growth of nine per cent over the previous year, while it’s EBITDA at Rs.3035 crore grew by four per cent.
The group’s EBITDA growth was led by financing arm – Cholamandalam Finance (29 per cent) and its insurance unit – Cholamandalam MS General Insurance Co (12 per cent). Sugar and fertiliser units faced challenges with EID Parry Ltd reporting a 49 per cent decline in EBITDA to Rs.168 crore and Coromandel International reporting eight per cent loss. Engineering arm Tube Investments grew at nine per cent.
“It was a challenging year. But this year, EID Parry and Coromandel International are well positioned to take advantage of the uptick on sugar – driven by higher prices and fertiliser business – expected to do well on the back of good monsoon predictions,” said A Vellayan, Executive Chairman, Murugappa Group.
While favourable monsoon will drive growth in fertiliser business, the policy environment has infused some confidence with the Centre expediting subsidy disbursements and considering new initiatives such as direct payments to farmers.
Likewise, the sugar business is expected to gain a lot in the coming season due to government’s action on supporting exports that helped reduce surplus stock, boost to ethanol policy and waiver of excise on molasses for ethanol production. All these measures would lead to an overall growth of the sector.
Vellayan also said its rural retail business will see expansion this year. The network of 775 agro input retail outlets under Mana Gromor in Andhra Pradesh, Telangana and parts of Karnataka will be expanded to north Karnataka, south Maharashtra and Tamil Nadu next year.
He also said group’s financial services business would continue to maintain strong double growth due to revival of commercial vehicle industry and Central government’s strong thrust to increase insurance penetration.
Cholamandalam MS General Insurance Company grew 30 per cent in terms of gross written premium in 2015-16 against an industry average of 14 per cent.
The growth in commercial vehicles and other segments will drive growth in group’s NBFC arm Cholamandalam Investment and Finance, which saw its vehicle finance disbursements grew by 32 per cent and home equity disbursements by 14 per cent in 2015-16.
Though Vellayan expects strong growth prospects this fiscal, the group is unlikely to chalk out any major capex plan due to low levels of capacity utilisation at its factories.
“Our plants are currently running at 70 per cent capacity. We want to increase optimum usage at the plant to 90 per cent. Currently, we don’t see the need for further capital expenditure,” said Vellayan.
“We had invested Rs.300 crore last year as capex. We had spent most of it. The remainder will be used during this fiscal,” said N Srinivasan, Director - Finance, Murugappa Group.
Reason to call off payments bank biz
Vellayan also said the Group had to surrender the payment bank license due to unviable business model. One of the key reasons was the shift in business platform for payments bank that presents an attractive opportunity for telecom players, e-commerce firms or banks than others.
“I reckon that companies, which are going into this, will be only telecom companies or banks that want to retain their customers or have a large customer base. What happened with the platform is that the base has changed very fast. We would have to burn a huge amount of capital even to stay in the business. Probably only 4-5 players will come into the market and they would be either telecom companies or bankers,” he said.
Srinivasan explained that the entire base was different when it applied and got in-principle approval. “We found that it is no longer like a financial inclusion, it is like playing the e-commerce market. You require huge capital and long gestation period,” he added.
It was proposing to invest about Rs.100 crore to make a sustainable business in two-three years. But it would be required to pump in more money to meet the losses for at least six-seven years.
The Group’s finance services firm Cholamandalam Investment and Finance Company had, in March this year, announced its decision to abandon plans for establishing payments bank, for which it was given RBI approval in August 2015.