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Aditya Birla
, an AV Birla group company, is in the midst of a business restructuring exercise and is looking at high-growth areas like financial services, fashion retailing and urea for investment of close to Rs 8,000 crore.
As part of the exercise, the company might also look at exiting the business process outsourcing (BPO) business, which lacked scale, a company official said. The revenue of Birlas' BPO business (comprising Aditya Birla Minacs) -about $450 million at present - has not been able to match the rate of growth scaled by peers.
Declining to comment specifically about the plans for the BPO business, Aditya Birla Nuvo CFO Sushil Agarwal said: "The company's strategy for entry into, or expansion of, or exit from any business depends on the sector's growth potential and AB Nuvo's positioning within that sector to generate returns. If a business does not fit into that criterion, we might look to sell it, release the capital and invest that money, instead, in other businesses."
Birlas are not alone in looking to sell the BPO business. Earlier, the Essar group's Ruias had, in fact, announced they would sell Aegis, their BPO unit, at a valuation of $1 billion. But, with an economic slowdown deterring investors, the group has not yet managed to find takers.
Agarwal refused to comment on a report by global brokerage house UBS that said, in UBS' view, AB Nuvo might not be averse to selling stake in Idea Cellular for the right valuation. The company holds 25.3 per cent stake, while all group companies jointly own 45.88 per cent in Idea Cellular.
Earlier this week, AB Nuvo had announced it would sell its carbon-black business to a group company for around Rs 1,450 crore. Agarwal said the decision had been taken after considering that global scale and positioning had become vital as, globally, tyre companies were relying on multinational firms for raw materials. It was challenging for AB Nuvo to become a global player, given its investment plans in other businesses, he added.
The company would invest close to Rs 4,000 crore each in the urea business and the financial services business - as and when the government cleared Birlas' banking licence and expansion of urea unit in Jagdishpur through a brownfield plant, he said.
The Birlas are expanding the lending book of their financial services business before applying for a banking permit. The Reserve Bank of India has invited applications by July this year. "The Rs 4,000-crore investment will be made over the next three-five years," he said. Also, the firm is investing Rs 800 crore in fashion retailing - acquiring controlling stake in Pantaloon's fashion retail business.
Analysts have warned AB Nuvo's net debt-to-Ebitda ratio (on a standalone basis), at 4.5 times, and balance sheet strength could worsen if its investments fail to deliver appropriate returns. "The company may require capital injections either from promoter companies or by divesting stakes in non-core businesses to meet funding requirements," UBS had said in an April 3 report.
Asked about leveraging, Agarwal said: "The divestment of the carbon-black business will reduce debt and support growth plans. Moreover, the company received equity infusion of Rs 456 crore from promoters on conversion of warrants in March. The balance infusion, of Rs 670 crore, is expected over seven-eight months."
STRATEGIC SHIFT
Aditya Birla Nuvo’s plan
Investments
-
Rs 4,000 crore
Financial services -
Rs 4,000 crore
Fertiliser expansion at Jagdishpur -
Rs 1,600 crore
Fashion retailing (including debt)
Exits
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Rs 1,450 crore
Sale of carbon black business - BPO Negotiations for sale on
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Life insurance
To sell stake to Sun Life (after govt allows foreign firms to raise holding)
