Q&A: Rakesh Jain, managing director Aditya Birla Nuvo

Jain talks about the company's growth strategy

Billionaire Kumar Manglam Bilra-promoted Aditya Birla Nuvo is a truly diversified conglomerate with a portfolio of manufacturing as well as service sector companies. A unique structure followed by Birla is to facilitate the growth of new capital intensive businesses such as insurance and telecom from cash cows like textile, carbon black and insulator businesses.

Rakesh Jain, managing director of the company in an interview with Sharleen D’Souza, Abhineet Kumar & Dev Chatterjee talks about the strategy that he is following for company’s growth.

Q. Insurance business 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 of the company?

A. Our Non Banking Finance Company still requires regular capital infusion. Hence there is no consideration for demerging the five business verticals that the company has for financial services, IT, telecom, fashion retail and manufacturing businesses.

Our unique structure of cash cow business from manufacturing verticals funding the growth of emerging service sector companies is still quite relevant and will be so in the near future.

Q. The company has allotted 16.5 million warrants to promoters to raise Rs 1500 crore in the current financial year. What is the update on this?

A. We received Rs 375 crore, a 25 per cent of the money in May from the promoters. We expect additional Rs 450 crore worth warrant to be converted by December and rest to be converted 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.    

Q. Talking about your various operations how has the company weathered the odds of global and domestic slowdowns?

A. Like any other diversified businesses you are going to see some businesses outperform and some businesses see a head wind in such a slow down.  And that is what has been happening for the past two three quarters in our company. Our manufacturing businesses like carbon black and insulator which are related to respectively auto and power sector have been going through a slowdown. So demand has been a little slow there.

But, moving forward the demand should pick up. We also believe that 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.

Q. So which particular sectors have been driving the growth in the recent quarters?

A. From profitability perspective financial services grew significantly. Besides we have been trying to build the IT and ITES business in the last 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. 

Q. What exactly is happening in IT and ITES? How are you seeing growth there?

A. Earlier, our assets were primarily into 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 we 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 a significant off shore capabilities while we have more of onshore capabilities which is very strong and very good. But earlier onshore cost was higher which affected profitable growth. But that has reversed now. Having a strong presence in North America is actually helping now. They see that we have been there for 30 years and have been able to grow significantly. We are also able to deliver very well.

Q. How are your clients for IT and ITES businesses in the US doing? What are their growth prospects?

A. We work very closely with auto sector which suffered significantly in 2008. GM and Chrysler were major customers for us and they went through crisis then. We have been a very critical supplier to them even during the bankruptcy and were worried that we might not get all our receivables. But since, 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.

Q. Regarding the acquisition of Pantaloon Retail, when will the numbers from this business start to come in?

A. That should come when the court finally approves the demerger scheme which will happen sometime 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.

Q. What are your plans for Pantaloons?

A. See, the plan is that it will continue to run as a subsidiary, there will be synergy at input level and it will continue to run as a standalone business. It has a significant presence and is a good complimentary. In Madura Garments there was a gap in the kids wear 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.