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People don’t invest in a firm because it generates cash

People don’t invest in a firm because it generates cash
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First Published: Mon, May 04 2009. 12 43 AM IST

Learning from mistakes: Bhattacharya says the group has received investment proposals from 41 financial institutions.
Learning from mistakes: Bhattacharya says the group has received investment proposals from 41 financial institutions.
Updated: Mon, May 04 2009. 12 43 AM IST
Mumbai: Group executive president, strategy and business development, Aditya Birla Group, Dev Bhattacharya began his career with the group in 1996 as vice-president corporate strategy and business development when it was contemplating entering new businesses such as financial services, information technology and apparel. He oversaw the acquisition of IT company PSI Data Systems in 1999 and back office services firm Minacs Worldwide in 2000. Bhattacharya was also involved in the group’s aborted plan to enter the energy business and build a power plant with a liquefied natural gas terminal in Chennai through a joint venture with Unocal, the eighth largest oil company in the US.
In an interview, he says the group is moving away from being just a manufacturing enterprise, decentralizing decision making, and looking to enter new businesses. Edited excerpts:
Several of your businesses such as financial services and retail need cash to grow and it isn’t easy to raise money in this environment. How is the group managing it?
Learning from mistakes: Bhattacharya says the group has received investment proposals from 41 financial institutions.
We manage the portfolio on asset, growth and cash basis. People don’t invest in a company because it generates cash. New investors always look for growth... Without growth, we will get no valuation. Cash is never king, it is necessary. Growth is always the king. So, we need business process outsourcing, financial services and telecom that provide growth. We were wrong in some instances. But we have learnt from these mistakes.
Where did you go wrong?
In metals (Hindalco purchased Novelis in 2006 at the peak of the commodity cycle), we should have gone a little later than we did... We also need to bear in mind that we may not have got Novelis (had we waited) and a second chance.
Won’t entering new businesses be all the more difficult when capital is scarce?
We have no problems in raising money. We have received proposals from 41 financial institutions to invest. The reason for such a response is conglomerate management. We believe this is the kind of model that will work and it is recession proof.
You seem to have a manufacturing hangover even when it comes to building service-oriented businesses.
Many systems are designed to manufacturing business. The rigour, the tightness, the questions we ask are all geared to make an efficient manufacturing company. So we learn from companies we acquire. In some businesses we do have the hangover. But how we have designed our management systems in telecom, financial services or retail today...the way we are doing it is completely different from what we would have done four-five years ago... The management focus and decision making is different now. We do not curtail decision making in retail the way we (do in) yarn business. The way we opened 700 stores is an example. It would not have happened a few years ago.
So you mean to say there is decentralization within the group’s decisions making.
We have business review councils for each business and this helps us. The management team of each company has a lot of freedom to decide which way the business has to go.
The group has never been the first mover in new businesses.
In telecom we were the first (the Aditya Birla Group partnered with AT&T and secured among the first licences for mobile services in the country). But like everybody, it took time to roll out (our services) because we had partners to contend with and that was the difficult part. It is not that we were not the first in financial services business. Going through a joint venture to set up an umbrella financial services business—was the first in that sector (the group set up financial services business in partnership with Sunlife of Canada in 1998).
Your answer may apply to telecom. But, can you say that in apparel business? Even though you began in 1998, your scale and size is still a handicap here.
Yes. We have been slow. (But) we are always ready to try new things. The models for customer facing business whether it is retail departmental stores, speciality stores or garment stores are changing every day. We are also going through reinventing and repositioning our brands. In certain areas we may have done well and others, we may need to catch up.
baiju.k@livemint.com
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First Published: Mon, May 04 2009. 12 43 AM IST