Aditya Birla Group exits low margin business but on growth path, say analysts

Kumar Mangalam Birla’s elaborate restructuring of the conglomerate that he leads, the Aditya Birla group with a combined market cap of $50 billion, will set the different group companies on a firm growth path over the next few years, analysts say.

“Some of the moves may seem premature right now,” said Mayuresh Joshi, Vice-President, Angel Broking, “but it seems that they are focussing on the four-five verticals that have the most potential for growth.”

In the last few months, the group completed the biggest chunk of the restructuring process, merging Aditya Birla Nuvo with Grasim, while hiving off the various financial services businesses into the new Aditya Birla Capital. Meanwhile, the cement company Ultratech closed a ₹16,189-crore acquisition; it sold its textile business in Grasim Bhiwani Textiles to Mumbai-based Donear group and, if market speculation is to be believed, has put its fertiliser business Indo Gulf Fertiliser on the block.

At the same time, the group has plans to launch a payment bank once its telecom arm Idea merges with Vodafone to lead the industry, and has just received the RBI approval to start an asset reconstruction company under its financial service arm.

“Some moves seem premature,” Joshi said. “For instance, the shutdown of its e-commerce venture ABOF was surprising. There’s still a significant transition time before e-commerce ventures can make money.

“Even in fertilisers, I think the policy environment is going to change soon once direct benefits transfer comes in. So the current working capital difficulties that fertiliser manufacturers are facing, I think that will begin to ease.”

A spokesperson for the Aditya Birla group said the company will not comment on market speculation, when BusinessLine sought comments on the possible sale of the fertiliser arm Indo Gulf Fertiliser. Indo Gulf Fertilisers, a part of Grasim which manufactures and markets urea, seeds and agrochemicals, has been reporting declining revenue and profit numbers.

“But the synergies on the other businesses will start to come in soon,” an analyst said. “The VSF business has created a strong moat for Grasim; for cement, I see the demand-supply mismatch correcting soon. Both Idea and Vodafone have been bleeding; it makes logical sense for the two rivals to merge and take on Jio together. Telecom is seeing a phase of consolidation. I see the group exiting low-margin businesses right now.”

The AB group has hired D Shivakumar, currently PepsiCo India’s Chairman, as head of strategy and business development. Shivakumar will join the AB Group on January 1.

“We’ve got lots of opportunities in existing areas, and we have advantages in terms of size, financial strength,” KM Birla told BusinessLine in an interview last month. “We don’t have space for a new business. We might look at a joint venture for the asset reconstruction business, he added.

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