Mix of cash cows & emerging biz still relevant: Rakesh Jain

Interview with MD, Aditya Birla Nuvo

Aditya Birla Nuvo is a diversified conglomerate, spanning manufacturing and service sector companies, from new capital-intensive businesses such as insurance and telecom to traditional cash cows such as textiles, carbon black and insulators. Rakesh Jain, managing director, talks on the growth strategy to Sharleen D’Souza, Abhineet Kumar & Dev Chatterjee. Edited excerpts:

Insurance has been one of the largest capital-intensive businesses of the company in the recent past. With this achieving break-even, do we see consideration for demerging various business verticals?
Our non-banking finance vompany still requires regular capital infusion. Hence, there is no consideration for demerging the five business verticals the company has for the financial services, information technology, telecom, fashion retail and manufacturing businesses. Our unique structure of cash cow businesses from manufacturing verticals funding the growth of emerging service sector companies is still quite relevant and will be so in the near future.

The company has allotted 16.5 million warrants to the promoters to raise Rs 1,500 crore in the current financial year. What is the update on this?
We received Rs 375 crore or 25 per cent of the money in May from the promoters. We expect an additional Rs 450 crore worth of warrants to be converted by December and the rest by the end of the financial year. This will be on expected lines and we do not see any issue in the capital infusion from the promoters.

How has the company weathered the odds of global and domestic slowdowns?
Like any other diversified business, you are going to see some outperform and some see a head wind in such a slowdown. That is what has been happening for the past two-three quarters in our company. Our manufacturing businesses like carbon black and insulators which are related to automobiles and the power sector, respectively, have been going through a slowdown. So, demand has been a little slow there. Moving forward, the demand should pick up. We also believe we should be the last man standing. So, as long as we have a very good product at the lowest cost and we enjoy the majority market share in the industry, we should bounce back rapidly.

So, which particular sectors have been driving the growth in recent quarters?
From the profitability perspective, financial services grew significantly. Besides, we have been trying to build the information technology and IT-enabled services (ITeS) business in the past year and a half or so. Last year, we invested significantly with a new contract and that is now showing up growth in revenue, as well as profitability.

What exactly is happening in IT and ITeS? How are you seeing growth there?
Earlier, our assets were primarily in North America, so we have a significant businesses and clients there. With the slowdown from 2008 onward, we have been on the receiving end and were almost on the negative side. But in the past three years, there has been a lot more emphasis on growing within the US and even the outsourcing to be done in North America itself. So, it is a blessing in disguise.

All the other players have significant offshore capabilities. We have more of onshore capabilities, which is very strong and very good. But, earlier, onshore cost was higher, which affected profitable growth. This has now reversed. Having a strong presence in North America is actually helping. They see we have been there for 30 years and been able to grow significantly. We are also able to deliver very well.

How are your clients for IT and ITeS businesses in the US doing? What are their growth prospects?
We work very closely with the automobile sector, which suffered significantly in 2008. GM and Chrysler were major customers for us and they went through a crisis then. We have been a very critical supplier to them even during their bankruptcy and were worried that we might not get all our receivables. But as we were the critical supplier, we got all our money back.

The sector has rebounded significantly and we have also diversified within the auto sector, with Hyundai, Toyota, Honda. The auto sector is our key strength. We have been also able to diversify very effectively with other auto companies, which have been growing very fast.

Regarding the acquisition of Pantaloon Retail, when will the numbers from this business start to come in?
That should come when the court finally approves the demerger scheme, which will happen some time in February-March of the coming year. But it will be effective from July 1 2012, so we will have three quarters’ results getting consolidated once we get the approval.

What are your plans for Pantaloon?
The plan is that it will continue to run as a subsidiary, there will be synergy at the input level and it will continue to run as a standalone business. It has a significant presence and is a good complementary. In Madura Garments, there was a gap in kidswear and women’s fashion, so that will be in Pantaloon. For some time, we will continue to run as two separate entities and our objective is to grow the businesses.