BK Birla set on 50% stake in group firms

BK Birla set on 50% stake in group firms

Kolkata: Eighty-nine-year old B.K. Birla, chairman of the eponymous business group based in Kolkata, wants to leave for his successors—grandchildren and daughters—at least 50% ownership in all listed firms controlled by him.

Over the next two-three years, he plans to shore up his holding in all group companies, particularly those in which his family’s ownership is around 30% or less.

“I want to raise my holding in all companies to 50% before I hand them over to my grandson Kumar Mangalam (and other successors)," he said in an interview. “Even 40% (stake) is good, but in some of our companies our holding is much lower—around 30% or less."

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The BK Birla group’s interests include cement, textiles, chemicals, tyres and tea. It is one of the biggest industrial groups based in Kolkata. There are seven listed companies in the group. They posted a combined net profit of Rs.750.45 crore on net sales of Rs10,675.75 crore.

Kumar Mangalam Birla is the chairman of the Aditya Vikram Birla group. He is set to inherit most of B.K. Birla’s companies such as Century Textiles and Industries Ltd, Kesoram Industries Ltd and Century Enka Ltd.

It isn’t the first time B.K. Birla has said that he wants to raise his holding in group companies. In fact, the group has been raising its holding in almost all firms through so-called creeping acquisition, or purchase of shares from the market. But for the first time he says it is going to be one of his key priorities for the next two-three years.

Under Indian securities market regulations, promoters are allowed to raise their stake by up to 5% of a company’s shares in a year without making an open offer to the public.

B.K. Birla, who had earlier said he would retire when he turns 90 in less than a year, has now decided to carry on till he is “physically fit to attend office everyday". “Our family’s motto is (to) keep working till the end."

The BK Birla group’s holding is less than 30% in three firms—Century Enka, Kesoram Industries and Mangalam Cement Ltd. Birla is particularly worried about these firms, and is likely to spend most on ramping up his stake in them.

Kesoram, which produces cement, tyre, rayon yarn and chemicals, faced a hostile takeover threat nine years ago from a Dubai-based investor who had joined forces with a Kolkata-based stockbroker, but B.K. Birla persuaded them to abort the attempt, The Economic Times reported in early 2001. His family currently owns 26.54% in Kesoram.

“The way babu (B.K. Birla) managed to abort the takeover attempt is evidence that it is almost impossible to snatch a company from him," said a Kolkata-based stockbroker close to the Birla family, on condition of anonymity.

“The ongoing investment in his company’s shares is like a gift for his grandchildren… He wants them to have a larger stake when they inherit the companies."

According to B.K. Birla’s latest will, Mangalam Cement and Mangalam Timber Products Ltd are going to be taken over by his granddaughter Vidula Jalan, who is the daughter of the Birla patriarch’s younger daughter Manjushree Khaitan.

The group’s holding in Mangalam Cement and Mangalam Timber is 28.42% and 35.9% respectively. B.K. Birla has been raising his stake in Mangalam Cement—between March 2008 and September 2009, he shored up his ownership by 1.56% of the company’s share capital.

The group’s ownership is the lowest in Century Enka, which manufactures synthetic yarns. It held 25.23% at the end of September last year, having raised it from 23.91% since March 2008.

The group’s stake in Century Textiles, the biggest in the group by turnover, was 40.33% at the end of September last year.

B.K. Birla wants to tighten his grip on Century Textiles as well but says “raising our stake in Century (Textiles) is an expensive proposition, but we own more than 40% there, so it’s not bad".

The two other firms in which the group’s ownership is more than 40% are Jay Shree Tea and Industries Ltd and elevator maker ECE Industries Ltd. Under B.K. Birla’s succession plan, his elder daughter Jayshree Mohta is going to take over both firms. The group’s holding in Jay Shree Tea and ECE is 40.25% and 42.78%, respectively.

To tighten his control over his group, B.K. Birla in 2005 raised his stake in his family’s principal holding arm Pilani Investment and Industries Corp. Ltd to 57.57% by acquiring shares held in it by his nephews C.K. Birla and S.K. Birla. At least 7-8% more of Pilani’s shares are held by close associates of B.K. Birla, and his effective control is around 66%. Till the 2005 deal, B.K. Birla’s ownership in Pilani was around 25%.

Pilani holds a substantial stake in BK Birla group firms such as Century Textiles, Kesoram and Mangalam Cement and in AV Birla group companies such as Grasim Industries Ltd and Hindalco Industries Ltd. Pilani’s main investment is its 36.78% stake in Century Textile.

Meanwhile, B.K. Birla has decided not to expand his textile business any more, though it is one of the oldest businesses of the group. Kesoram, for instance, was founded in 1919 and initially it ran cotton mills. Its cotton mill business was eventually spun off into a separate company.

“The textile business is rather unpredictable," B.K. Birla said. “Prices keep going up and down, whereas cement seems to have a solid future." Asked if he would consider selling off his textile business, he said, “We don’t believe in selling businesses because they are like children, but we won’t expand the textile business."

Three companies of the group—Century Textiles, Century Enka and Kesoram—have interest in textiles. Century Textiles is by far the biggest—the turnover of its textile unit was Rs668 crore in fiscal 2009, but the business segment posted a pre-tax loss of Rs91.76 crore. Kesoram’s rayon unit, too, posted a pre-tax loss of Rs4.5 crore on a turnover of Rs277.5 crore in fiscal 2009.

Graphics by Yogesh Kumar/Mint

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