Kumar Mangalam Birla, chairman of the Aditya Birla Group, comments on the proposed merger of Aditya Birla Nuvo Ltd (Nuvo) and Grasim Industries Ltd, and the spinning off and listing of one of Nuvo’s subsidiaries, Aditya Birla Financial Services Ltd. Edited excerpts from an interview:
Why did you opt for such a complex structure instead of demerging only Aditya Birla Financial Services from Aditya Birla Nuvo?
We wanted Aditya Birla Financial Services to have a strong parentage that can fuel growth.
Is Idea Cellular part of this restructuring?
Telecommunications was never part of this construct. Idea Cellular has been investing around Rs.10,000 crore in the last 10 years without any support.
What is the trigger for the exercise?
The financial services company has come of age. It has reached a critical mass. Also, these companies were operations in a similar space. So we thought it had to be spun off. We have been deliberating this for some time.
Are more spin-offs expected?
No. We have already spun off Carbon Black, fashion retail, etc. Now no more spin-offs.
How do you see this merger working out in terms of synergies?
We have strong businesses that are throwing up cash. If you look at the portfolio, VSF (viscose staple fibre) and chemicals are cash-generating businesses. Both have a presence in similar spaces. Both come under the broad umbrella of textiles. Both have holdings in some of our operating companies like Hindalco, ABFRL (Aditya Birla Fashion and Retail Ltd). It makes sense to merge them.
Minority shareholders are not very happy about the transaction...
It is a complex deal. Whatever the media has reported is speculative. That was not the correct structure.
It will take some time to communicate to them. You cannot jump the gun.
How will you convince shareholders?
It’s a very interesting mix of businesses, some manufacturing, some financial services. Some throwing up cash, others little more stable in their growth outlook. Some that are fast growing. It’s a very interesting mix between manufacturing and services. Essentially, to put it succinctly, it’s a play on the India growth story.
This transaction has just been announced. It’s just been a couple of hours. What has been put out in the press has been speculative. What minority shareholders have reacted to was based on speculation. A complex transaction like this takes time to understand.
Grasim shareholders have not asked for a such transaction. Are you imposing such a transaction on them?
Management has to run the company and convince (shareholders) about the growth plans. We need to make them understand this complex restructuring.
Are you open to having an investor in Aditya Birla Financial Services?
Yes. We are open to having financial investors.
Which unit needs funds under Aditya Birla Financial Services?
The lending business may need more funds at this point of time.
Any plans to apply for a bank licence?
No. We are now focusing on (being a) non-banking financial company.
Are you happy with the government’s initiatives?
I am very optimistic. The government is doing all the right things. India has considerably improved on the ease of doing businesses index.
Goods and services tax is a shot in the arm. There are green shoots seen in the demand for aluminium. Cement demand has also started seeing some sprouts.
Which of your businesses will be growth drivers?
Cement, fibre, chemicals, financial services. Some of these are the fastest growing sectors in the company.
What is the capex planned for this year?
We have just come off a huge capex cycle. We have just spent Rs.20,000 crore on purchase of Jaiprakash Associates Ltd’s cement assets. We have come off a capex of Rs.30,000 crore on Hindalco over the last 3-4 years. So you have to see what part of the cycle we are in. We are in a phase where several of our businesses have just come off a large capex. Now is the time to see returns come from that capex.