Senior Grasim officials said: "We are expecting the forward premium to dip further to around 5 per cent. If that happens, we will raise the amount in the latter half of the calendar to fund working capital and other modernisation." The executives said they had time till December to raise the amount. The company had planned to raise the amount last year through 7-year syndicated loans to fund its ongoing expansion and modernisation. The loans were to carry a coupon of 74 basis points above Libor.

However, around October last year, owing to an increase in forward premium on the dollar to over 15 per cent, and owing to declining domestic interest rates, the company decided to shelve the ECB and opt for a non-convertible debenture issue.

The 7-year NCDs were raised at 12.25per cent, the lowest contracted for a corresponding maturity. In the same period, only the Tata group flagship Tisco raised funds at the same rate. For the current fiscal, Grasim has a fund requirement of Rs 308 crore, of which Rs 135 crore will be raised from financial institutions. While Rs 58 crore will go towards the second-phase expansion of the VSF division, Rs 250 crore will be spend on modernisation of existing facilities. The company also has to contribute around Rs 65 crore towards projects being promoted by the Aditya Birla group during the current fiscal.

Company officials said that Grasim's average cost of borrowing for the funds raised over the last 18 months was 13 per cent. Despite a high interest outgo of Rs 255 crore during 1997-98, officials said the company was unable to bring down its interest cost owing to lack of any prepayment clause in its agreements with the financial institutions.

Blueprint for better show

Following depressed profit margins in 1997-98, Grasim Industrieshas chalked a three-pronged strategy--volumes-driven growth, severe cost cutting and increased operational efficiency for improved performance in 1998-99.

President Shailendra Jain said with increased operational efficiency, the company hopes to save around Rs 24 crore during the current financial year.

Jain said owing to low realisations from most of its businesses in 1997-98, the only way to record a higher turnover would be to go in for volumes-driven growth. During the year, Grasim will commission the second phase of its VSF expansion by an additional 30,000 tonnes in the second quarter. Domestic VSF prices have fallen marginally, while international prices have plummeted 7.5 per cent after the south-east Asian meltdown.

Hence, Grasim has worked on a market development plan by exploiting the specific properties of VSF in end-uses which have the potential to deliver higher value to ultimate consumers. It has decided to widen the domestic market and penetrate the global market with speciality fibreslike spun-dyed, micro and macro denier, where it leads on account of operational flexibility.Grasim's acquisition of a pulp mill in Canada will provide the company with the cheapest possible dissolving grade wood pulp. At the sponge iron division, capacity of hot briquetted iron (HBI) is being increased from 750,000 tonnes to 900,000 tonnes with the installation of the fourth discharge line and the oxygen injection system at a cost of Rs 80 crore.

With most of the sponge iron producers having gone in for forward integration, Grasim remains the only merchant producer in the country. According to Jain, Grasim accounts for around 80 per cent of the country's HBI exports, with an f.o.b value of Rs 147 crore.