Aditya Birla Group Way
It was mid-2005, exactly a decade after Kumar Mangalam Birla took over as Chairman of the Aditya Birla Group, that the Business Today, a leading business magazine of India noted, “At 38, Kumar Mangalam Birla has already done more than what most others get to do in a lifetime. He's transformed a hidebound conglomerate into a modern commodities giant that's globally competitive. Today, it racks up Rs 33,000 crore in revenues and boasts of a market cap of nearly Rs 30,000 crore. In that time, he has also pulled off a string of acquisitions at home and abroad, professionalised a group that long placed loyalty over competence, and more importantly geared it to compete in a global marketplace. The Aditya Birla Group today operates on a global scale, with manufacturing operations in nine countries and product sales in over 100. It's a world leader in viscose staple fibre, the world's ninth largest producer of cement, the fifth largest producer of carbon black, Asia's largest integrated Aluminium producer, and also its fastest growing copper company.” When, after the untimely death of Aditya Birla in 1995, Kumar Mangalam Birla took over as the Chairman of Aditya Birla Group, the Aditya Birla Group had a worldwide turnover of Rs.8500 crore , and diversified lines of business. It was around the same time that the foreign institutional investors had begun hammering Aditya Birla Group scrips, mainly for two reasons. One, over- diversified companies were out of favour in the new focused reform era. And two, Aditya Birla Group companies had diluted their equity – with GDR and domestic issues – far too often for Fll comfort. 1
To mend fences, Kumar responded quickly by withdrawing in January 1997 the $125 million GDR issue that Grasim had planned as early as May 1996. He also aborted all unnecessary and unrelated diversifications. The Flls were impressed though they reserved their final verdict.
2But clearly it was the time for Kumar to reflect and have definite vision about the future. The group’s success in the past was based essentially on three factors: one, the ability to spot opportunities; two, take calculated risks and back them up with money and technology; and three, sticking to certain basic industries – VSF, Aluminium, cement, carbon black – and building dominant market shares in them. The group's cash reserves, strong business lines, low production costs, dominant leadership positions, high technology, diversified product ranges and decentralized management had made the Aditya Birla Group virtually immune to a serious long-term downturn. But what was needed was growth. While Tata Group was already bigger, Ambani Group was fast zooming past. A strategic analysis brought out that
Aditya Birla Group was too diversified, with interests in textiles, cement, tea, sponge iron, Aluminium, fertilizers, shipping, carbon black, refining, chemicals and a clutch of small businesses. About 25 per cent of revenues came from textiles, a highly regulated and hugely fragmented sector, Margins as low as 8-10 per cent. In cement, two separate listed companies; lack of synergies, jacked up costs. The group had no obvious competencies in refining and had made a half-hearted foray into it. Birla could not grow the fertilizer business; high regulatory controls curbed expansion plans. The high cross-holdings and the unplanned diversification within the group.
Consolidation for Growth:
Armed with this analysis, Kumar decided to focus on two key variables: market leadership and size. In keeping with his vision of continuing in business where he was among the top three players, Birla began to gradually reduce the group’s dependence on fibre-based business where his share of the market was low. Instead, he began to shift attention to non-ferrous metals. There were few competitors and his company, Hindalco, already had a big presence in Aluminium. He ramped up...