The Hindu Business Line : `Financial synergy, the driver of merger'

Although the merger was a practical and expedient thing to do at this point, it should not be seen as a move of temporary convenience, said Mr Kumar Mangalam Birla, Chairman of the Aditya Birla group. "One would never do consolidation of this magnitude from a short term perspective."

This announcement roughly coincides with the completion of 10 years of Mr Birla taking over as Chairman of the group, following the demise of his father, Aditya Vikram Birla.

Mr Kumar Mangalam Birla minces no words when he says that the "value businesses" of Indo Gulf Fertilisers and Indian Rayon create more money than they need. Of course, some money will be required for debottlenecking and expansion but any further investment in these sectors will be counterproductive, says Mr Birla.

The creation of Aditya Birla Nuvo will now allow this money to be channelled into the four identified high growth sectors under it.

The four growth sectors are insurance, retail, telecom and BPO.

A rapid increase in branches in the entity's insurance business is on the cards. Down the line, when pension funds open up, there could be more opportunities. And one never knows when the opportunity for more consolidation in the mutual fund sector may arise.

On the retail front, the group will see a doubling of its retail and mall space in three years.

In telecom, the buyout of Cingular's stake in IDEA Cellular (along with the Tatas, another joint venture partner) will entail an investment of Rs 660 crore in the near future if the deal goes through.

And in BPO, expansion will happen both organically and inorganically, said Mr Birla.

There is already some synergy in financial products. Indian Rayon (which has 74 per cent stake in Birla Sun Life) and Birla Global Finance have complementary portfolios and distribution channels and have opportunities to cross sell.

All in all Aditya Birla Nuvo will be a "power house operating company," says Mr Birla. Indo-Gulf and the businesses of Indian Rayon ensure efficiency, predictable profits and cash flow; the four high growth businesses will step in to absorb this cash flow, and to very good effect.

With no decontrol of the fertiliser sector expected in the near future, this merger will endure, say the AV Birla group officials.

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