Aditya Birla Nuvo net profit rises 16.8%, plans fertilizer plant in US

29th May, 2013

Zahra Khan and Ruchira Singh
Live Mint
29 May 2013

Mumbai: Aditya Birla Nuvo Ltd is exploring the possibility of building a greenfield fertilizer plant in the US or Canada to take advantage of cheaper shale gas availability in the continent, and is in talks with several provincial governments to give shape to its plans, according to a top company executive.

"Not acquiring units, but it is more of a greenfield type... (of) setting up units," said Rakesh Jain, managing director of Aditya Birla Nuvo, on the sidelines of a press conference on Wednesday, when asked where the company may set up presence in the US, as announced earlier. "It depends on more clarity from the US government in terms of the long-term pricing and availability of gas. It would be in Canada as well."

On 5 March, Kumar Mangalam Birla, chairman of Aditya Birla group, said the group was looking for a "mid-size acquisition", adding that the shale gas discovery in America had led to a "huge geopolitical shift" that was "an interesting opportunity", a Bloomberg report said quoting Bloomberg TV.

"We are talking to (officials in) different states of both the US and Canada. (We are talking to) the three-four provinces in Canada both in (the) east coast and west coast, for example Ontario and Saskatchewan," Jain said. "Similarly in the US, we look at the eastern side," he added.

Aditya Birla Nuvo is a $4.5 billion diversified conglomerate with a portfolio of manufacturing as well as service sector businesses under its umbrella. Its fertilizer and agriculture business contributes over 9% to the overall revenue, Mint data show.

For the quarter ended 31 March, Aditya Birla Nuvo's consolidated net profit rose 16.8% from a year ago on higher sales and income from sources other than its core businesses, the company said.

Net profit rose to Rs.198.87 crore in the quarter ended 31 March from Rs.170.27 crore a year ago. Revenue rose 16.7% to Rs.6,995.95 crore from the previous year.

"Given the testing macroeconomic scenario and earnings pressure in some of its businesses, Aditya Birla Nuvo has posted strong earnings," the company, which has interests in businesses, including financial services, telecom and fashion and lifestyle products, said in a statement to the stock exchanges.

For the full year ended March, Aditya Birla Nuvo's profit increased 19% to Rs.1,058.89 crore, while sales rose 16.7% to Rs.25,490.20 crore.

"The results are in line with our expectations. The insurance segment may have hurt them a little but the company is definitely pulling up its socks as far as market penetration is concerned," said Ajay Jaiswal, president - research and investment strategies, at Microsec Capital Ltd, a Kolkata-based financial services provider.

Jaiswal said Aditya Birla Nuvo's plan to enter the US market is a good move.

"However, a brownfield investment would have suited the company better as the valuations in the US are still low," he said.

Aditya Birla Nuvo's Jain said the company is waiting for gas availability to improve in the US so there could be more opportunity for shale gas to be utilized for the likes of fertilizers such as ammonia "because that is the main raw material".

The company could make ammonia, diammonium phosphate and since there is already good availability of potash in North America, it could even make a complex called NPK-a customized fertilizer, Jain said.

The location of the company's plant in America could be near natural gas hubs such as the Henry Hub, a distribution hub in Louisiana, US.

"There is some gas availability in west coast and east coast also. We haven't really honed in on the place," Jain added.

On Wednesday, the company's board recommended an equity dividend of 65% (Rs.6.5 per equity share) for fiscal 2013, entailing a total expense of Rs.78 crore, the company said.

Aditya Birla Nuvo shares closed at Rs.1,082.50 on BSE, down 0.67%, while the benchmark Sensex fell 0.07% to 20,147.64 points.