Kumar Mangalam Birla predicts 'Decade of Capex Mahotsav' for India

Hails a few unicorns in start-up space but says he see 'bubbles in some places'; rues loss of Hindustan Zinc

The coming decade will see an upsurge in capital expenditure (capex) across many sectors, said Kumar Mangalam Birla, Chairman, Aditya Birla Group, while addressing members of the Indian Chamber of Commerce (ICC) on Friday.

"I believe, we have upon us a forthcoming decade of Capex Mahostav," said Birla.

Birla, who believes that 2021 is the new 1991, shared visible markers of India’s journey ahead. Increased capex is one of those and he made mention of both public spending and private sector-led capex.

“On one hand we have public spending, such as the National Infrastructure Pipeline (NIP), whose size at $1.5 trillion is even larger than what is being undertaken in the United States as part of their infrastructure stimulus. The infra plan covers all areas like roads, ports, airports, waterways, electricity, and telecom. Imagine the impact of an execution pipeline of nearly $300 billion every year, and what it would do to stimulate economic activity,” he said.

But beyond infra push, he pointed out, both bank and corporate balance sheets were in healthy shape today.

“The “twin balance sheet” problem, with stress caused by excessive bad loans, and over leveraged corporates, is truly behind us. As capacity utilization has risen, this is the time we will see a private sector led capex revival, which will persist for several years,” he said.

The Aditya Birla group, incidentally, is in the process of investing $3 billion in the next 12 months across its various companies.  

Among the key growth drivers of the future for India, he mentioned “silicon and sunshine”.

Both digital economy (based on silicon chips) and a greening economy based on solar, and hydrogen promise to provide tremendously powerful growth drivers to the economy, said Birla.

“A combination of solar and hydrogen has the promise of making India energy independent, or even an energy exporter,” he said.

“The force of reforms. The force of investment. The force of formalization. The force of digital and green technology. And the force of youth and entrepreneurship. I am convinced that these 5 forces will propel India’s rise over the next several decades. India’s position as an economic superpower is its inevitable destiny,” Birla said in his speech.

Unicorn valuation

Responding to a question on valuation of unicorns and start-ups vis-à-vis traditional businesses, Birla said, “Markets are giving you valuations, you can’t say it’s wrong or it’s right. But having said that, I definitely don’t understand the valuation the market is giving. I think, it’s a product of a huge amount of liquidity in the system and being there at the right place at the right time.”

But he said that some unicorns were truly delivering new customer propositions, widening the net of people to whom services and goods could be made available to.

However, he added, “I see some bubbles in some places.”

Unit economics

Birla was also asked about whether one should focus on manufacturing or services. And he said, “I don’t think, there is an either/or. It depends on which sector you are talking about. It could be from services, it could be from manufacturing,” he said.

“When I see all of this digital stuff happening, the only thing that concerns me is if we are losing sight of what we call unit economics,” he said.

“Can a business really survive unless it makes operating cash flows. I think, some basic metrics remain unchanged whether it is service business or manufacturing. End of the day, the business has to have strong fundamentals,” he said.

Telecom investment

"Telecom has been a tough one for us," said Birla while responding to a question on key learnings from the spectrum of investments from Hindustan Zinc to telecom.

“I think, there have been several factors where we could have done better. It’s one of the few sectors in which we have not done well. It was on the verge of bankruptcy even a month ago. But it’s a story that’s going to play out. We are in a much better situation today,” he said.

Hindustan Zinc, Birla mentioned, he lost it by whisker "regretfully", but it it would have been a great investment to add.