Birlas plan to sell business outsourcing arm

Aditya Birla Nuvo to invest Rs 8000 cr in fin services, urea expansion

Aditya Birla Nuvo, an AV Birla group company, is in the midst of a business restructuring exercise and is looking at high growth areas like financial services, fashion retailing and urea for increased  investments of close to Rs 8,000 crore.

As part of the exercise, the company may also look at exiting from business process outsourcing business as it lacks scale, a company official said. The revenue of its BPO business, which consists of Aditya Birla Minacs, is about $450 million and is unable to grow as compared to its peers.

Declining to comment specifically about the plans for BPO business, Sushil Agarwal, CFO of Aditya Birla Nuvo said:“The company’s strategy for entry into, or expansion of or exit from any business depends on the sector growth potential, ABNL’s positioning within that sector and generate returns. If any business does not fit into the criteria, We may look to sell it, release the capital and instead invest that money in other businesses.”

Birlas are not alone in their plans to sell off their BPO business. Earlier, the Ruias of Essar group had announced that they will sell their BPO unit Aegis at a valuation of $1 billion. But the Essar group failed to get any takers for the BPO unit till date as a global slowdown has deterred investors.

Agarwal refused to comment on a report by global brokerage house, UBS which says that in their view, AB Nuvo may not be averse to selling its stake in Idea Cellular for the right valuation. AB Nuvo holds 25.3% stake in Idea Cellular. The Birlas group companies jointly own 45.88% stake in the company.

Early this week, Aditya Birla Nuvo announced that it will sell its carbon black business to a group company for around Rs 1,450 crore. Agarwal  said the decision was taken considering that in the carbon business global scale and positioning has become vital as globally tyre companies wants to deal with global players for raw materials. And it is challenging for ABNL to become a global player considering its investment plans in other businesses.

Aditya Birla Nuvo will invest close to Rs 4,000 crore each in the urea business and in the financial services business– as and when the government clears the banking license and expansion of its urea unit in Jagdishpur through a brownfield plant, he said.

The Birlas are expanding the lending book of its financial services business and will apply for the permit to the Reserve Bank of India which has invited application by July this year. “This investment will be made in the next three to five years,” he said. The company is also investing Rs 800 crore in fashion retailing for acquiring controlling stake in Pantaloon’s fashion retailing business.

Analysts warn that ABNL’s net debt-to-EBITDA (on a standalone basis) is 4.5 times and balance sheet strength may worsen if the investments fail to deliver appropriate returns. "The company may require capital injections either from promoter companies or by divesting stakes in non-core businesses to meet funding requirements,” UBS said in a report dated April 3.

When asked about the leveraging, Agarwal said: “The divestment of carbon black business will reduce the debt and support growth plans. Moreover, in March-end the company has received equity infusion of Rs 456 crore from promoters on conversion of warrants. The balance infusion of Rs 670 crore is expected over next 7-8 months.”