Capacity expansion by 164,000 tonnes in the Viscose Staple Fibre (VSF) pision is going to be the next growth driver for Grasim. Also leadership in the cost of production will increase the earnings of the VSF pision.

The demand for VSF has increased by CAGR of 9% in the last five years. However, Grasim has not been able to utilize much of it and instead has lost around 2% of its market share. However, with the commissioning of 37,000 tonne plant at Harihar in the third quarter this year and 120,000 tonne plant at Vilayat early next fiscal, the company is all set to increase its market share once again. The total capacity of the company will reach half a million tonne post the commissioning of these plants.

This expansion will adequately meet the increasing demand for VSF. The demand for VSF is expected to rise on the back of rising disposable income of the people of emerging countries demanding more comfort. Moreover, lower requirement of resources; land and water has made VSF more preferable and cost effective than cotton production.

Grasim’s cost leadership comes from the fact that it is an integrated player. Its backward integration into Rayon grade pulp, caustic soda and power, major cost centres for VSF, has helped it reduce its costs in the past. To meet the expansion in capacity, the company has acquired a Canadian and a Swedish pulp makers. This will help the company in meeting around 80% of its pulp requirements. Cost leadership will be a bane to the company amid the situation when Chinese VSF manufacturers are suffering losses with current prices of VSF.

Volume growth and cost reduction along with growing demand for the same will help the VSF pision to post significant EBIDTA numbers and improve its contribution to the overall profitability of the company.