Aditya Birla Nuvo, the mini-conglomerate of Kumar Mangalam Birla, plans to deploy the surplus cash generated by its older-businesses such as carbon black, fertilisers, insulators, rayon and textiles in the growing new-generation businesses — financial services, telecom, BPO and IT. Further, the company is looking at a transformation from a manufacturer to a ‘premium conglomerate’.
As most of the services businesses are in the investment phase, we use the surplus cash from manufacturing businesses to nurture the other, Sushil Agarwal, chief financial officer, told Business Standard.
The revenue share of older businesses, called ‘value business’ in the recent investor presentation of the company, has fallen to 28 per cent from 67 per cent in the past six years, while the ‘growth businesses’— including new age businesses and garments — became the major revenue contributor.
“Going forward, we expect superior growth rates to continue in services businesses (new age businesses). At the same time, manufacturing businesses like insulators, carbon black, etc. are also likely to do well, considering the huge potential in infrastructure and consumption-related sectors, said Agarwal.
The revenue from growth businesses has surged 15 times to Rs 9,800 crore in the last financial year, compared to Rs 600 crore in 2002-03. The old age businesses, which generated Rs 1,200 crore revenue six years earlier, have grown more than two-fold to Rs 3,800 crore.
The new age services businesses have high growth potential and the company nurtures it to broaden the revenue base, said industry experts. “The optimum blend of value and growth businesses would de-risk the company from any financial issues,” they added.
Nuvo holds a majority stake in a number of financial firms, including Birla Sun Life Insurance, Birla Sun Life Mutual Fund, Birla Sun Life Wealth Management, Appollo Sindhoori, Birla Global, BIASL and Capital Advisors. In Idea telecom, it holds a 27 per cent stake, while the Aditya Birla group is the largest stakeholder with over 49 per cent. Birla Minacs and PSI Data Systems are the BPO and IT arms, respectively.
In the garments business, which includes apparel retail and contract exports, the company has brands like Louis Philippe, Van Heusen, Peter England, Allen Solly, People and The Collective. Madura Garments Exports is subsidiary of Nuvo. Birla Carbon, Birla Shaktiman, Aditya Birla Insulators, RayOne and Linen Club Fabrics are the companies classified under value business.
“The traditional cyclical businesses are facing difficulties, especially in a downturn scenario, when exports are falling. The consumer-facing businesses have shown their potential even during financial crisis. Further, the return on investment is higher from segments like insurance, mutual funds and telecom,” said Sanjiv Agrawal, partner and head of valuation group, Ernst & Young.
When asked whether the company would phase out any of the manufacturing businesses, the CFO said, “Our decision to enter and exit any business is mainly based on the future potential and the group’s strengths to emerge as a leader in that business.” In carbon black and insulators, the company is expanding capacities, he explained.
In the life insurance business, the company plans to invest about Rs 500 crore in this fiscal as capex. It also plans to spend about Rs 500 crore in the other businesses. The company is raising Rs 1,000 crore from preferential allotment to promoters. About Rs 250 crore has already been received in June as application money, said the company.
To achieve speedy growth, Idea is looking to roll out in six circles and increasing its presence in existing circles. The financial services business is building newer channels to reach the consumer, while Birla Minacs is improving seat utilisation and rationalising sites to reduce overheads. The garments export business is regaining profitability through right-sizing and cost reduction measures, the company said in its presentation.
