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With a payment bank under its belt, the Aditya Birla Group is betting big on its new businesses like retail, telecom services, and financial services, which are performing far better than the competition.
In the first quarter of this financial year, the revenue growth of Aditya Birla Nuvo, the holding company of all the new-age businesses, was driven by financial services, which reported a 22.1 per cent rise, year on year: telecom, which grew by eight per cent; and fashion and lifestyle, which grew by 12.7 per cent.
Aditya Birla Nuvo’s earnings before interest, tax, depreciation and amortisation was up 31.8 per cent to Rs 1,580 crore due to the turnaround in the fashion and retail business and due to its exit from low-margin businesses. Its net profit was up 50 per cent in the June quarter to Rs 396 crore.
The better performance of the new businesses comes at a time when the group’s big boys, Hindalco and Ultratech, are facing slow growth.
“The focus is on new businesses, as it will help the group to cushion the impact of falling commodity prices, which are at historic lows. Both cement and aluminum volumes and prices are expected to remain low for the rest of the financial year,” said an analyst tracking the group.
“The group should look at options to demerge all these businesses from Aditya Birla Nuvo and list them separately to unlock value,” he added.
On Thursday, the Aditya Birla Nuvo stock closed the day at Rs 2,217 a share. The stock is up 31.3 per cent since January even as Hindalco lost almost 46 per cent of value. Ultratech was up 15 per cent since January though its net profit fell six per cent in the June quarter.
Group executives said they were hiring for the new businesses, including a chief executive officer and management for the new payment bank, and were taking steps in e-commerce with a new site to sell wide-ranging products from apparel to shoes.
Aditya Birla Nuvo will invest Rs 300 crore in rest of the financial year, including in a new payment bank, and spend another Rs 600 crore to fund the growth capital of its financial services business. The company will also bid for solar power projects and provide equity funding to the new venture.
Hindalco executives said the slowdown would continue for some more quarters till commodity prices improved. Ultratech is also expecting its volumes to remain subdued till the economy picks up.
“Earlier we were expecting the economy to pick up by the second half of the current fiscal… now even that looks difficult. Till then, the group will build its new-age business. The old economy business will continue to be the cash churner once the economy turns around,” said an executive.
