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BW Businessworld

The Fledgling Comes Of Age

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The mini no longer looks very mini. Insiders within Aditya Birla Nuvo (Nuvo), the conglomerate-within-a-conglomerate of the Kumar Mangalam Birla-led Aditya Birla Group say that discussions are afoot about a rationalisation of the various businesses including a series of investments within certain businesses that have matured: financial services, garments carbon black and information technology.

The growth — past and prospective — of many of these businesses have company folk salivating over what they perceive to be valuations that equity markets would pay for these companies. The questions are which ones to take to market, and when.

People at Nuvo are not just thinking about outgrowing its mini status, but about scaling up to a full-blown conglomerate. By 2015, revenues are targeted at $10 billion, up from the current $4 billion (don't miss the use of the dollar: they think of the Birla Group as a global conglomerate).
Nuvo's highest revenue comes from the financial services business, thanks to its aggressive chief executive officer (CEO) Ajay Srinivasan, former CEO of fund management at Prudential Corporation Asia. The insurance business, which contributes nearly 85 per cent of revenue of Aditya Birla Financial Services, turned Ebit (earnings before interest and taxes) positive in 2010-11 after being incubated for a decade.

The company has joint ventures with Sun Life Financial in Canada for insurance and asset management (74 per cent in life insurance and 50 per cent in asset management joint ventures). The non-bank finance company (NBFC), private equity, broking, wealth management and general insurance advisory are other businesses in the fold. Nuvo also holds 25.35 per cent stake in publicly listed Idea Cellular. Madura Fashion & Lifestyle, formerly Madura Garments, has grown at a compounded annual growth rate (CAGR) of 21 per cent for the past five years (with sales of Rs 1,809 crore and an Ebitda of Rs 137 crore in 2010-11).

According to the grapevine, private equity funds are hovering over the branded apparel firm for a stake, but the valuations on offer are not acceptable to the group. Madura owns brands such as Louis Philippe, Van Heusen, Allen Solly and Peter England.

The IT and ITeS and carbon black businesses are around Rs 1,600 crore each, while the agri-business is around Rs 1,200 crore. With the acquisition of Canadian BPO Minacs in August 2006, the Aditya Birla group became a prominent player in BPO services. Though the downturn hurt the firm, with the recovery of the western markets Minacs is regaining ground, says an IT consultant in Mumbai.

Nuvo's Hi-Tech Carbon has the fourth-largest carbon black capacity in the world at 900,000  tonne per annum. Indo Gulf Fertilisers, the agri-business subsidiary, generated sales of Rs 1,250 crore in FY11 (and an Ebitda of Rs 258 crore). Even smaller entities in Nuvo like Indian Rayon, Aditya Birla Insulators and Jaya Shree Textiles had over Rs 100 crore in Ebitda in FY11.

And what of investment (which is why Nuvo is looking to unlocking some value in select companies)? The capital requirement for this financial year is Rs 500 crore, to be spent for enhancing the capacity of rayon, insulators and textile plants and opening fashion and lifestyle stores. That capital need will grow in coming years as Nuvo looks for more acquisitions. Will the child become the father of the man?
(This story was published in Businessworld Issue Dated 01-08-2011)