Grasim Industries To Manage As Well As Operate VFY Business Of Century Textiles

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Grasim Industries To Manage As Well As Operate VFY Business Of Century Textiles

Grasim Industries has entered into an agreement with Century Textiles to manage as well as operate the Viscose Filament Yarn (VFY) business of Century Textiles & Industries Ltd (CTIL) for a period of 15 years, according to a recent Bombay Stock Exchange filing.

Though the agreement would provide Grasim with the right to use the relevant assets of CTIL, the ownership of assets will remain with CTIL.

According to agreement, Grasim would pay Rs 600 crore as royalty and a refundable security deposit of Rs 200 crore, through internal accruals. The transaction is expected to be completed in two months.

The deal has been signed due to the limited capacity available in the market and non-feasibility of organic expansion at Grasim’s end.

CTIL’s VFY plant is strategically located at Shahad in Thane district of Maharashtra which is closer to customers as well as the Jawaharlal Nehru Port Trust (JNPT) for raw material imports and exports. The capacity of CTIL’s VFY plant is 25,000 tonnes (19,000 tonnes for VFY and 6,000 tonnes for rayon tyre yarn).

Revenue from CTIL’s VFY business stands at Rs 962crore with EBITDA margin of 19.3%.

After the transaction, its combined business would have a total capacity of 46,300 tonnes and revenue of Rs 1,701 crore with an EBITDA margin of 23%. The transaction would also give Grasim access to capital expenditure light capacity expansion, a new product (rayon tyre yarn) and a wider customer base.

The transaction is estimated to be value accretive, generating net profit right from commencement of the arrangement. The transaction would continue to result in value creation in long term, given the synergies related to operations, brand name and supply chain.

The estimated cost of a greenfield project of this size and infrastructure would be Rs 2,000 crore, with a gestation period of three years.