Bhattacharya says Aditya Birla Group's revenue ratio of manufacturing to services has moved from about 75:25 in FY11 to 65:35 currently
Mumbai: Dev Bhattacharya, group executive president, corporate strategy and business development, oversees future directions, mergers and acquisitions (M&As) as well as strategic initiatives in existing and new businesses of the Aditya Birla Group. Working at the Aditya Birla Group since 1996, Bhattacharya also oversees the solar and renewable business as well as its e-commerce initiatives.
Bhattacharya, who holds a bachelor of technology degree in mechanical engineering from National Institute of Technology, Rourkela, and a postgraduate degree in industrial engineering from National Institute of Industrial Engineering, Mumbai, has over 25 years of experience encompassing manufacturing, financial, software and media industries. Edited excerpts from an interview:
What has the group’s M&A strategy been so far?
We started looking at inorganic growth as a very serious option for growth as opposed to organic which was the mainstay of the group in the earlier years. Initially we wanted to grow very rapidly without disturbing the market dynamics but slowly we shifted gears and started picking up companies with more sophisticated capabilities with access to foreign markets and therefore access to more discerning marketplace. Therefore, both in terms of processes and products, we got an access to stuff which is different and perhaps better in terms of technological capabilities.
What is the Aditya Birla group’s total investment in the last five years up to 2014-15?
The total capital expenditure of the group over last five years is close to $22 to $23 billion. Close to $9 billion is the investment for Hindalco alone in the above mentioned period.
Of these investments, what is the manufacturing to services investment ratio?
Of the above, ratio of investment in manufacturing and services is at 60:40. Investment in services is dominated by Idea (Idea Cellular Ltd) and retail businesses (More stores and apparel including the Pantaloon brand) while in case of manufacturing, it is metal, cement and viscose staple fibre.
What is the revenue ratio of manufacturing to services?
The revenue ratio of manufacturing to services has moved from about 75:25 in FY11 to 65:35 currently FY15 (likely to remain similar in FY16). Over the next few years, the ratio may get slightly skewed towards services driven by growth in telecom, apparel and financial services relative to manufacturing (assuming a slow recovery in commodity and end of project cycles in most businesses)
The revenue ratio will skew towards services in medium term but a big chunk will continue to come from manufacturing business.
Is the company expected to invest more in services?
While we have completed significant expansions in metals and fibres and hence unlikely to make major capex investments soon, few manufacturing sectors like cement and chemicals are likely to find investments given the growing demand as well as consolidation.
However, there are significant tailwinds in the telecom and apparel/retail and financial services sector which along-with regulatory changes are likely to seek more investments. This may also get accentuated by the fact that we may have to make investments in digital domain to evaluate new delivery models.
Therefore, investment ratio is going to remain balanced and if at all may slightly skew towards services.
Where do you see the next big acquisitions happening?
In the cement sector there is a possibility. In chemicals space there is a possibility.
Metals I don’t know if we are profitable. We have got a lot of exposure but it is also dependent on what the LME cycles are at and at this point it is low. Chances of an acquisition in that space is low.
On the services side we are always on the lookout for brands. So we are a branding company and therefore brand consolidation, brand acquisition are areas we would be more than interested in.
In financial services there is ample scope. Our position is still small in the financial services sector in the country. So I have to scale up in my own country.
In financial services, there will be a lot of investments within the country, there will be expansion of services but all of it will be organic effort. Maybe inorganic. So financial services is an area to watch out for growth.
In telecom, we are large enough but we still need less volatility in the sector before we can do something (M&A) there.
In the retail space, we are still not relevant in the larger context of retail. So it will require a lot of growth and stability before we do anything there. But growing retail via acquisition is not ruled out.
E-commerce is an area where obviously there will be a few years of growth and all kinds of sector and segments so we are looking at it.
I don’t think we have a very clear position on whether we will build out different e-commerce business on our own or acquire some. Or invest in some but we are looking at it as this sector as it is exciting and growing.
How have you seen your chairman Kumar Mangalam Birla work on acquisitions?
He has become a lot more confident. In the initial days he was learning but he never took a position until he had understood everything. He would go slow, he would be tentative and in many cases he never pushes his views on people. Even then he didn’t, now also he doesn’t.
But now he knows every sector. He has got a global perspective he has got a very strategic mind. He gets to the bottom very quickly. You could make a 50 page presentation but he knows that one slide that he needs to focus on.