‘New company will look at e-commerce as a growth channel’

Aditya Birla Group has taken a major stride to emerge as the largest company in the fashion retail space, which has seen a lot of action with cut-throat competition from e-commerce players. In an interview with BusinessLine , Kumar Mangalam Birla, Chairman of the Group, says the reorganised retail business will play a major role in driving the Group's growth. Edited excerpts:

Why this transaction is happening now?

It is essentially because we thought a lot of synergy could be worked out with the grouping of companies in similar business. The transaction will also help us tap the growth potential in the fashion retail space with a company having a bigger balance sheet. It is much more fire-powered now.

How do you see the growth in the retail space?

As far as I understand, the value growth in the retail space is somewhat delinked to the economic growth. In the past, one has seen much higher growth in retail compared to GDP. This is because it is still a nascent sector. These companies that are being merged have seen much faster growth than the industry average. So, one can expect this trend to continue.

Will the restructuring in anyway help bring down Pantaloon’s debt?

This deal is not aimed at that. Profitability at Pantaloons has improved significantly since we took over. A lot of work into restructuring, reforming, launching new brands, renovating stores and adding new categories has been undertaken. So now, it is at a take-of-point and we thought it would be the good time to regroup.

What investments are you planning in the retail business?

We have plans to add 200-250 stores a year with an investment of ₹400-500 crore next year. As of now, retail is relatively a small part of the group, but the kind of growth one has seen in the retail space, I will not be surprised if it becomes big for the group in the next few years.

What is your view on selling through e-commerce portals and huge discounts being offered by online retailers?

We are open to sell on any e-commerce platform, not necessarily owned by the group. I believe there has been some discussion with some e-commerce players and high-end apparel manufacturers on discounting. We do not want our brands to be discounted because it does not fit in there. If there are discounting on our brands, we stop selling on the particular portal.

What is the way forward for Aditya Birla Nuvo and the issue of conglomerate discounting it suffers from?

It is investing in its current businesses. There are great opportunities in fertilisers (Indo Gulf Fertilizer), but the bulk of its investment will be in the financial services space such as NBFC, housing finance, mutual fund and insurance. I think the transaction to group the fashion retail business will partially address the issue on conglomerate discount by giving our shareholders direct stake in the apparel retail business. They get to have not only the benefit of Nuvo holding in the apparel business but also from their direct exposure to the sector.

Why did you keep (the supermarket brand) ‘More’ out of the new entity?

‘More’ is in a different segment of retail and does not fit into current scheme of things with the new entity formed. It remains a separate entity held by promoters. It will operate in hyper and super market space.

Your vision for e-commerce and do you see it as threat to brick and mortar?

E-commerce is here to stay. It’s a global phenomenon. It is a great proposition in terms of pricing and consumer connect. The new company will look at e-commerce as a channel for growth. Yes, e-commerce will have an impact on the brick-and-mortar business, but our brands in different segments are strongly entrenched. I think the impact on them will be minimal. We have an extensive network in tier-II and III cities, especially Pantaloons. I do not think brick-and-mortar retail will go away, but growth rate may slow down.

The Modi government has almost completed one year. Are you satisfied with the develop ments?

I think it is unrealistic to expect changes to happen. Even if we take over a company and turn it around, it takes two-three years. Here we are talking about a country. What I see is the focus on right areas and a lot of work is going on. I think it will take at least another year before we could see the impact on the ground. As far as I am concerned, the government is up to my expectations.

Will you sell stake in the new entity to foreign companies?

That is one option we looked at, but settled for the plan we executed as we found no expertise coming from foreign players at this point of time. The transaction announced today is by far the best to unlock value for investors.

Do you think the manufacturing cost in the cement and metal business will go up after the coal auction? Will you pass on the cost to consumers?

Yes, the cost will go up slightly and there will be pressure on margins in near terms.

When is the merger of BK Birla cement business with UltraTech Cement expected?

I can assure you that we are not even considering the proposal at this point of time. It’s all speculative and nothing on the anvil as of now.

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