 "Aditya Birla Nuvo to retire debt: Sushil Agarwal")
The Aditya Birla Group finally sold its business process outsourcing (BPO) unit for $260 million in a deal signed on Thursday. Sushil Agarwal, wholetime director and the chief finance officer of Aditya Birla Nuvo, talked to Dev Chatterjee on the reasons behind the decision to exit the business and what they will do with the cash. Excerpts:
What made the group exit the BPO business?
Primarily this was a strategic move in keeping with our group’s philosophy of being a dominant player in each of our businesses. We forayed into the information technology and information technology-enabled services (IT/ITeS) in 2003, with the acquisition of the erstwhile Transworks. At that point, it was just $12 million. Later, to provide scale to the business, TransWorks took over Minacs, a company 15 times its size, in 2006 for about $125 million. Today its annual revenue is $450 million (Rs 2,466 crore), with a net profit of Rs 125 crore for FY13. Our group’s vision is to be in those businesses in which we have scale, leadership and a good return on capital. The BPO business was doing very well operationally and generating cash but was lacking scale. The ideal size could have been around $1 billion. To attain the next level of growth and arrive at this strategic scale, Minacs required huge capital investments. That said, at Aditya Birla Nuvo, we have multiple competing capital-deployment priorities for various businesses. We felt the capital could be better deployed in businesses like financial services and fashion and lifestyle. We were scouting for investors who, given the industry scenario and competitive dynamics, would be able to infuse the additional capital required to propel Minacs to the next level of growth and further its strategic objectives. So, when this group of financial investors, led by Capital Square Partners and CX Partners evinced interest in the acquisition of our IT/ITeS subsidiary, we believed it to be a good fit. We, therefore, entered into an agreement with them to divest Aditya Birla Minacs at an enterprise value of $260 million.
What will Aditya Birla Nuvo do with the $260-million proceeds?
We will retire debt of $160 million and the rest, $100 million, will be used to fund new businesses, where the return on capital is better. Capital has to be deployed in those areas where the returns are highest.
When do you expect to close the deal?
We would like to close the deal in the next two-to-three months. We would like to close the deal by this quarter so that we can retire the debt as soon as possible.
Aditya Birla Nuvo has applied for a banking licence. What's the update on that?
We have made our application with the Reserve Bank of India and we think we meet all the criteria in terms of structuring of the company, brand value and investment required. I think the licence should be given to those companies which have "lots to lose" in terms of brand standing, reputation and money - should they fail. We have a very good brand and reputation in India and the world and hence we think have a lot to lose if we were given a licence and we fail to meet the objective. Our endeavour will be to give the best banking services to Indians and we are ready to invest a lot of money in the banking sector.
What made the group exit the BPO business?
Primarily this was a strategic move in keeping with our group’s philosophy of being a dominant player in each of our businesses. We forayed into the information technology and information technology-enabled services (IT/ITeS) in 2003, with the acquisition of the erstwhile Transworks. At that point, it was just $12 million. Later, to provide scale to the business, TransWorks took over Minacs, a company 15 times its size, in 2006 for about $125 million. Today its annual revenue is $450 million (Rs 2,466 crore), with a net profit of Rs 125 crore for FY13. Our group’s vision is to be in those businesses in which we have scale, leadership and a good return on capital. The BPO business was doing very well operationally and generating cash but was lacking scale. The ideal size could have been around $1 billion. To attain the next level of growth and arrive at this strategic scale, Minacs required huge capital investments. That said, at Aditya Birla Nuvo, we have multiple competing capital-deployment priorities for various businesses. We felt the capital could be better deployed in businesses like financial services and fashion and lifestyle. We were scouting for investors who, given the industry scenario and competitive dynamics, would be able to infuse the additional capital required to propel Minacs to the next level of growth and further its strategic objectives. So, when this group of financial investors, led by Capital Square Partners and CX Partners evinced interest in the acquisition of our IT/ITeS subsidiary, we believed it to be a good fit. We, therefore, entered into an agreement with them to divest Aditya Birla Minacs at an enterprise value of $260 million.
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We will retire debt of $160 million and the rest, $100 million, will be used to fund new businesses, where the return on capital is better. Capital has to be deployed in those areas where the returns are highest.
When do you expect to close the deal?
We would like to close the deal in the next two-to-three months. We would like to close the deal by this quarter so that we can retire the debt as soon as possible.
Aditya Birla Nuvo has applied for a banking licence. What's the update on that?
We have made our application with the Reserve Bank of India and we think we meet all the criteria in terms of structuring of the company, brand value and investment required. I think the licence should be given to those companies which have "lots to lose" in terms of brand standing, reputation and money - should they fail. We have a very good brand and reputation in India and the world and hence we think have a lot to lose if we were given a licence and we fail to meet the objective. Our endeavour will be to give the best banking services to Indians and we are ready to invest a lot of money in the banking sector.