 "Plan to invest Rs 750 crore in financial services biz: Rakesh Jain")
Rakesh Jain, is heading Aditya Birla Nuvo Ltd, the holding company of many Birla group companies. ABNL has applied for the banking license and just consolidated the financials of Pantaloon Fashion with itself in the June quarter. In an interview with Sharleen D'Souza, Jain talks about the future plans of the Birla group and of course how the group is managing the slowing economy.
Right now the economic conditions are quite gloomy. The rupee is falling and so is the demand for products. How are you battling the slowdown?
Obviously, it is tough. The entire global economy and the Indian economy is going through tough times. Also it depends on how you see it whether as a glass half empty or half full situation. I always feel that we need to be optimistic and that opportunities are plenty. That's what we are seeing in our businesses. As we are a diversified conglomerate, there are certain sectors where we have witnessed slowdown while in the other sectors we have picked up pace. So overall, it has been a very positive result for us till now. I am still cautiously optimistic while moving forward but I think we have seen the bottom and from now on it has to be up. We see potential out there and feel positive moving forward.
With no good news coming in on the economy front, do you expect some downgrades in the coming months?
The country is going through a tough time economically, with rupee depreciation and an increase current account deficit. All this will have an impact. The government needs to focus more on growing exports and the manufacturing sector, which will further increase employment. Increase in exports will reduce the deficit also. But, there is significant pressure on everyone.
The fundamentals of the country have not changed so the core remains the same. When you look at big projects like mega power plants and mining, the projects are impacted due to land acquisition and environmental clearance issues.
However, the sector we are in like fashion and lifestyle, young adults are looking more for branded products. Madura Fashion & Lifestyle has seen a 25% growth in this quarter. When you look at other sectors like telecom, financial services, fashion and lifestyle, there is little impact while on the other side thanks to the overall economic situation our insulator business is impacted. As a result, there a de-growth in the business, but it is a small part of our portfolio. Also we have now divested our carbon black business which had tied up our working capital of Rs 900 crore. Now that has gone out of our balance sheet to a subsidiary.
With Pantaloon in your bag, and application for a banking license...in the coming months what will be your investment plans?
Telecom will continue to grow and the balance sheet of Idea is very strong. We are looking for more investment in the financial services business where we will invest around Rs 750 crore. These investment also depends on how much the book can grow keeping risk in mind.
We are also putting more money in our fashion business like Madura and Panataloons. We plan to invest around Rs 300 crore in the fashion business. Of this, Rs 150 crore will be for Pantaloons business. In this first quarter alone, we have opened 94 stores in the fashion business.
We are quite optimistic about the banking business as our structure is broadly based around the guidelines announced by the RBI for new banking companies. We have a strong presence even in the rural side, so we meet all the criteria and we are a strong contender. In future, the NBFC will have to merge with the bank and the NBFC networth is already Rs 1,300 crore. By the time we get our banking license we will have a net worth of Rs 1,700 crore to Rs 1,800 crore.
Your carbon Black business is not doing that well and you have spun it off into another subsidiary. So what's the plan?
The carbon black business for us as a group is still a good business as it is contributing over $2 billion revenues for us and is very profitable. Carbon black is a very, very good business globally. But the growth of the business has slowed down due to auto sector's slowdown and economic conditions. Besides foreign tyre companies have global suppliers all over the world. The business requires huge working capital of around Rs 900 crore to Rs 1,000 crore. As the cost of production goes up the receivables also goes up, so net this business historically has been Rs 800 to Rs 1,000 crore for ABNL. Same time last year, in June, our debt to EBIDTA ratio was 4.5 which was stretched quite a bit. We are bringing all global carbon black business under one umbrella. The only way out now for us is to disinvest in it. After the hive-off, we are in a much better state now and ABNL's balance sheet is very strong.
What are your plans with regards to going abroad? We understand that the group is making a huge investments in the US?
Yes, we have been keen at an acquisition in the US as you know that there are enough gas mines in North America and gas is cheap at around $3-$3.50 a unit. So a lot of Indian chemical industries are looking at North America. Even as a fertiliser company, we don't want to always depend on the government for subsidy dole outs. We need to be on our own, we can't depend on the government funds for subsidies. This happens to be a business in which we have been there for a long period of time. We are evaluating opportunities in the US and our team is looking at it. We plan to make a $1 billion investment in a green field project in the US. That's the typical investment we look at in any green field project.
Right now the economic conditions are quite gloomy. The rupee is falling and so is the demand for products. How are you battling the slowdown?
Obviously, it is tough. The entire global economy and the Indian economy is going through tough times. Also it depends on how you see it whether as a glass half empty or half full situation. I always feel that we need to be optimistic and that opportunities are plenty. That's what we are seeing in our businesses. As we are a diversified conglomerate, there are certain sectors where we have witnessed slowdown while in the other sectors we have picked up pace. So overall, it has been a very positive result for us till now. I am still cautiously optimistic while moving forward but I think we have seen the bottom and from now on it has to be up. We see potential out there and feel positive moving forward.
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The country is going through a tough time economically, with rupee depreciation and an increase current account deficit. All this will have an impact. The government needs to focus more on growing exports and the manufacturing sector, which will further increase employment. Increase in exports will reduce the deficit also. But, there is significant pressure on everyone.
The fundamentals of the country have not changed so the core remains the same. When you look at big projects like mega power plants and mining, the projects are impacted due to land acquisition and environmental clearance issues.
However, the sector we are in like fashion and lifestyle, young adults are looking more for branded products. Madura Fashion & Lifestyle has seen a 25% growth in this quarter. When you look at other sectors like telecom, financial services, fashion and lifestyle, there is little impact while on the other side thanks to the overall economic situation our insulator business is impacted. As a result, there a de-growth in the business, but it is a small part of our portfolio. Also we have now divested our carbon black business which had tied up our working capital of Rs 900 crore. Now that has gone out of our balance sheet to a subsidiary.
With Pantaloon in your bag, and application for a banking license...in the coming months what will be your investment plans?
Telecom will continue to grow and the balance sheet of Idea is very strong. We are looking for more investment in the financial services business where we will invest around Rs 750 crore. These investment also depends on how much the book can grow keeping risk in mind.
We are also putting more money in our fashion business like Madura and Panataloons. We plan to invest around Rs 300 crore in the fashion business. Of this, Rs 150 crore will be for Pantaloons business. In this first quarter alone, we have opened 94 stores in the fashion business.
We are quite optimistic about the banking business as our structure is broadly based around the guidelines announced by the RBI for new banking companies. We have a strong presence even in the rural side, so we meet all the criteria and we are a strong contender. In future, the NBFC will have to merge with the bank and the NBFC networth is already Rs 1,300 crore. By the time we get our banking license we will have a net worth of Rs 1,700 crore to Rs 1,800 crore.
Your carbon Black business is not doing that well and you have spun it off into another subsidiary. So what's the plan?
The carbon black business for us as a group is still a good business as it is contributing over $2 billion revenues for us and is very profitable. Carbon black is a very, very good business globally. But the growth of the business has slowed down due to auto sector's slowdown and economic conditions. Besides foreign tyre companies have global suppliers all over the world. The business requires huge working capital of around Rs 900 crore to Rs 1,000 crore. As the cost of production goes up the receivables also goes up, so net this business historically has been Rs 800 to Rs 1,000 crore for ABNL. Same time last year, in June, our debt to EBIDTA ratio was 4.5 which was stretched quite a bit. We are bringing all global carbon black business under one umbrella. The only way out now for us is to disinvest in it. After the hive-off, we are in a much better state now and ABNL's balance sheet is very strong.
What are your plans with regards to going abroad? We understand that the group is making a huge investments in the US?
Yes, we have been keen at an acquisition in the US as you know that there are enough gas mines in North America and gas is cheap at around $3-$3.50 a unit. So a lot of Indian chemical industries are looking at North America. Even as a fertiliser company, we don't want to always depend on the government for subsidy dole outs. We need to be on our own, we can't depend on the government funds for subsidies. This happens to be a business in which we have been there for a long period of time. We are evaluating opportunities in the US and our team is looking at it. We plan to make a $1 billion investment in a green field project in the US. That's the typical investment we look at in any green field project.