Grasim Industries (Grasim) has entered an agreement with Century Textiles (CTIL) to manage and operate the Viscose Filament Yarn (VFY) business of Century Textiles for 15 years. The agreement to be completed in two months, will give Grasim the right to use the relevant assets of Century Textiles, however, ownership of assets will remain with CTIL. As per the agreement, Grasim would pay Rs 600 crore royalty and a refundable security deposit of Rs 200 crore, through internal accruals. CTIL’s VFY plant is strategically located at Shahad, Thane, close to customers mainly in Surat and JNPT port for raw material import/export. CTIL’s plant capacity is 25,000 tonnes (19,000 tons in VFY and 6,000 tons in Rayon Tyre Yarn). CTILs revenue from VFY business is Rs 962 crores with EBITDA margin of 19.3 per cent. Post the transaction, the combined business would have a total capacity of 46,300 ton and revenue of Rs 1,701 crore with EBITDA margin of 23 per cent.
The transaction, which would give Grasim access to capex light capacity expansion, new product (Rayon tyre yarn) and a wider base of customer — is estimated to be value accretive, generating net profit right from start 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 Greenfield project of this size and infrastructure is Rs 2,000 crore and the gestation period is of three years. Segment wise, outlook remains bright for: VSF, given the higher realisations and strong customer connect through Liva fabric.
