I Dear Shareholders
COVID-19 and the associated lockdowns across countries have triggered aonce-in-a-century crisis for the society and the economy in 2020. January now seems like amonth of a bygone . era - such has been the enormity of change. This is a defining periodin human and business history: one that will test the resilience of individualssocieties corporations and nations.
Given the fog of uncertainty all around it is hard to be T prescientin these times. But there is little doubt on one reality: companies with qualityleadership sound business fundamentals and a track record of winning in turbulent timeswill emerge as champions in the new global order.
It has been several months since the pandemic engulfed the world andyet there is a lot of uncertainty with respect to the extent of the economic contractiondue to this crisis and the subsequent pace of recovery.
This year will see an economic contraction but the 2020recession' is turning out very different from the past recessions. It has been toosudden - almost off the cliff; its spread has been all-encompassing - affecting almostevery economy and sector; and the plunge in economic activity levels and employment hasbeen unprecedented.
On the positive side this recession is likely to be one of theshortest assuming no second wave of the pandemic recurs. As present lockdowns around theworld get lifted and businesses reopen economic activity is likely to bounce back fairlyquickly. Around US$9-trillion stimulus from different governments globally will help tosupport this recovery along with the monetary actions by central banks. These policieswill also help to restrict the second-order effects like defaults and bankruptcies.
Some scars of the crisis will remain in the form of subdued consumerandbusiness confidence. Some sectors like airlines and hospitality will take time to recoverfully. And some supply chain disruption effects will linger. The International MonetaryFund (IMF) and other agencies are predicting that it could take about five to six quartersfor global GDP to inch back to J pre-crisis levels and the global economic trajectorythereafter will be below the pre-COVID trajectory for the next few years.
As the world emerges from the current crisis the next few S years arelikely to be marked by the lack of buoyancy in growth
^ subdued commodity prices and inflation a cautious trend in
project investments heightened risks of de-globalisation and politicaluncertainty; and increased dependence of financial K systems on ultra-loose monetarypolicy conditions. We will
also have to watch out for potential post-COVID changes in consumerbehaviour (such as more virtual engagements) and of operating models of organisations(such as work-from- home norms diversification of supply chain risks more use ofe-commerce).
COVID-19 struck India at a time when the underlying economic conditionswere subdued on account of heightened global uncertainty and stress in the domesticfinancial system.
Against this backdrop a stringent national lockdown to slow the spreadof the pandemic started in the last week of FY 20 and remained active to varying degreesin different geographies through most of the Q1 FY 21. It is estimated that ~80% ofIndia's GDP originates from districts which were classified under the red and orange zonesduring the lockdown where economic activity remained severely constrained.Correspondingly India's GDP is likely to contract in FY 21 which would be the first suchinstance in over four decades. The contraction is estimated to be particularly severeduring Q1.
Responding to this challenge both the Reserve Bank of India (RBI) andthe Government of India announced several policy measures to provide relief to theaffected sections of the economy to reduce the possibility of business failures and tosupport the process of recovery. The government has already initiated some remarkablereforms in agriculture mining and public sector enterprises. Such pragmatic policiesalong with the ambitious National Infrastructure Pipeline programme that the governmenthad announced in December 2019 will support India's medium-term growth rebound. Inthe interim however the Indian economy like the global economy will need to navigatethrough some difficult quarters.
ABG IN PERSPECTIVE
Over a longer historical arc the Aditya Birla Group has witnesseddramatic disruptions across periods businesses and geographies. And yet we have comeout stronger. A wide range of insights and experiences accumulated over diversesituations allows the Group to fortify its businesses from both the immediate and thelingering effects of economic pain caused by the pandemic.
In these turbulent and dynamic times the Group's near-term focus is tohold the ship steady and to see it through the turbulence - by emphasising on conservationof cash the safety of its teams and assets and strengthening its business relationships.The Aditya Birla Group is also closely examining the evolving changes in the businessenvironment and their implications to position itself well for leveraging theopportunities through and after the economic revival.
As the events began to unfold worldwide in the last quarter of thefinancial year we anchored to our core strengths - our people our processes and ouragility. In line with the Group's
core philosophy of employee care and wellbeing swift action was takento shut down our offices manufacturing units retail outlets and branches - wherenecessary; and recalibrate operations where feasible. Overnight everyone switched to anew paradigm of work from home and adopted digital technology seamlessly. This is not aneasy transition for large diverse global organisations. But it was made possible due tothe adaptability and commitment of our employees discipline of the leadership strongprocesses and past investments in digital technologies. Our culture of learning hugelysupported this quick switch over. A multi-generational workforce was an added advantage;as the younger digital-native employees played a reverse mentor role in guiding the olderemployees to become digitally savvy; the older employees enabled others to stay calmfocused and productive in difficult times. Continuous listening to employees through pulsesurveys and guiding them to make the most of the situation led to a productive and winningmindset. A pulse survey conducted with ABGites showed an assuring trend - 86% wereconfident about delivering their Q1 goals of the new financial year.
Faced with an unprecedented nationwide lockdown our group businessesproactively created Business Continuity Plans' working through differentscenarios. Our teams engaged deeply and meaningfully with customers and value chainpartners to support them better in these extraordinary times.
Over the last few months business models have been reassessed toidentify strategic and tactical opportunities to improve effectiveness prune avoidablecosts as well as prepare for the new normal. New opportunities are continuously beingideated and explored. For example Aditya Birla Fashion and Retail has made an emphaticforay into masks our chemicals business is producing disinfectants and the fibrebusiness is manufacturing antibacterial fibre.
The pandemic has also accelerated our shift to digitalisation acrossbusinesses. A new wave of digital energy is being unleashed with a clear focus on gettingcloser to our customers.
Our Group businesses are also leaving no stone unturned in redefiningworkplace hygiene. Every business has implemented new standards of safe working withguidelines for social distancing and zero-touch interactions. Similar protocols have beencreated for safe and superior customer engagements. We believe that things will continueto be dynamic and uncertain in the coming months. Even as we open offices and factorieswith protocols to put employee safety at the forefront and enhance productivity we willcontinue to leverage our strength of adaptability and agility.
A crisis of such magnitude is a great reminder of our responsibility togive back to society. True to its legacy ABG has curated a multi-pronged approach to helpour communities fight COVID-19 with a commitment of over '500 Crore towards COVID reliefmeasures. This entailed a contribution of '400 Crore to the Prime Minister's CitizenAssistance and
Relief in Emergency Situations (PM-CARES) Fund. In addition we havealso leveraged the capabilities of our apparel business to commence the production of onemillion triple-layer surgical masks and 100000 coverall garments. Several hundredthousand food packets provisions and disinfectants have been distributed to the needyacross the country. Given the depth of our presence in India we have also earmarked over300 beds for COVID-19 patients at our network of hospitals in our units.
This unflinching support to our employees communities and otherstakeholders is core to our DNA and will enable our long-term sustainable growth.
YOUR COMPANY'S PERFORMANCE
I am pleased to share that Aditya Birla Capital (ABC) has deliveredsolid performance across its business segments despite various macro-economic challengesduring the last year. Your Company through its subsidiaries continued its consistentprofit delivery through its diversified business model.
Aditya Birla Capital is one of the largest non-bank financial servicesplayer in India. It ranks among the top fund managers in the country with over '300000Crore of assets under management across asset management life insurance and healthinsurance. The overall lending book (NBFC and Housing Finance) stood at just under '60000Crore and the gross premium (across Life and Health Insurance) grew to '8882 Crore. TheCompany's retailisation strategy helped it to grow its active customer base to ~ 20Million through 850+ branches and 200000+ channel partners and several bank partners.Your Company has robust risk management frameworks and continues to focus on qualitygrowth while creating value across its businesses.
Your Company's consolidated revenue grew 9% year-on-year to'18028 Crore. The consolidated profit after tax (after minority interest) reflected agrowth of 6% year-on-year to '920 Crore. The Company raised '2100 Crore of equity capitalin FY 20 through a preferential allotment to the Promoter/Promoter group and marqueeinvestors.
I would particularly highlight the way all businesses of your Companyembraced the digital path to be able to 100% work from home and counter the impact of thedisruptions caused
by COVID-19. The performance of your Company during the last financialyear and in the two and a half months of lockdown viz. the second half of March April andMay has demonstrated that with its digital assets it can onboard customers anddistributors provide service and effect collections digitally.
The performance reflects the strong execution by teams across eachbusiness of your Company and a relentless focus to generate value for our stakeholders.
The financial services sector is pivotal to the India growth story aswell as the Group's overall strategy. Your Company has a vision to be a leader androle model in the financial services sector and has made significant progress towards it.Going forward your Company will focus on leveraging synergies of a unified financialservices platform and the Aditya Birla Group to reach out to more customers and increasepenetration of its financial services solutions.
FY 20 is not just another year. Never has the transition between twofinancial years been as tumultuous for the global economy. The pandemic is no doubt asobering reminder of how the world can change in unforeseeable ways.
As COVID-19 gets quelled and the global economy reawakens endurancewill pave the way for renewal - for individuals and corporations alike. When we emergefrom the pandemic I have no doubt that the world will recognise and celebratecorporations that are exemplars of good governance and sustainable growth. You can counton your Company as being one of them.
KUMAR MANGALAM BIRLA