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Tuesday, August 20, 2013

Birla plans to invest $1 bn in US chemical plant

Mumbai: The Aditya Birla group is planning to invest $1 billion (about Rs 6,000 crore) in setting up a chemical/fertiliser plant in the US to take advantage of the falling gas prices in that country.

Another reason for the big-ticket investment plan was a reviving business sentiment there, a top official said.

"We have been looking at an investment in the US, as there is enough and cheap gas - priced at $3-3.50 a unit. So, like a lot of Indian chemical companies, we are looking at the country for investment in the next few months," said Aditya Birla Nuvo Managing Director Rakesh Jain. He added, depending on its due-diligence report, the group would make the investment either in a greenfield (new) plant or through an acquisition. A team was already camping in the US to scout for opportunities.

As of now, foreign markets account for nearly half of the group's $40-billion turnover, which it aims to increase to $65 billion by 2016.

The group has a significant presence in India's fertiliser space through Indo Gulf Fertiliser but it has to depend on government subsidy to make money. Amid a slowdown, subsidy payouts to fertiliser companies had delayed considerably. Hence, the look West policy, Jain said.

He added Chairman Kumar Mangalam Birla had made it clear the group would not depend on the government for any subsidy or dole-outs and would like to compete with companies across the world on its own. "By investing in the US, our goal is to de-risk our businesses and take advantage of the global opportunities. With the US economy reviving very fast - on the back of (President Barack) Obama's policies, this is the right time to invest in the US," he said.

Jain, who has spent 20 years of his professional life in the US, said $1 billion was typical of the investment the group made in a greenfield plant. Another group company, Novelis, is also planning to invest $1 billion in expanding its capacity, mainly in

Latin America. The group expects, Novelis would from 2016 start generating cash surplus of close to $500 million a year and help its parent, Hindalco, meet its financial needs.

With its latest plan, Birla has joined a host of Indian companies investing in the North American markets for want of opportunities in India - and amid high interest rates and a slowdown here. Besides, the cost of gas price in the country is set to double, making investments in new power and chemical plants unviable.

In June this year, Apollo Tyres had announced it would invest $2.5 billion in acquiring US-based Cooper Tires. Similarly, Chairman Mukesh Ambani had recently said, with an investment of $5.7 billion as of March, Reliance Industries was the largest investor in the American shale gas space.

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