AV Birla Group - A comprehensive Study of the evolution of the company.

A V BIRLA GROUP

Presented by Group 4

Rishi Raj SinghRituparna MohantySandhyarani SahooShibashis SahuShikha SharmaShounak DasguptaShruti Ray

Legacy of Free Enterprise and Diversification

Sidharth Kumar PatraSobhan PattanaikSomak GhoshSomnath ChakrabortySomya NayakSoumya Ranjan Sahoo

GENESIS OF BIRLA GROUP

Foundation of the Birla Group of companies laid by Seth Shiv Narain Birla (Opium Business) Jute Mill set up by G D BirlaMade huge profits during world war IICompanies owned by Birla increased from 61 to 105Textile Mill established in EthiopiaAditya Birla set up the Indo-Thai Synthetic Company in Thailand.Successfully ventured in south east asian countriesAditya Group had four major ventures in South East Asia, viz., IndoThai Synthetics, Century Textiles and Thai Rayon in Thailand and P.T. Elegant Textile Industry in IndonesiaThai polyphosphate and Chemicals Co. Ltd was set up Kumar Mangalam Birla took over as chairman and reorganized the group into three sub groups viz., Hindalco, Grasim and AB Nuvo

Named after Aditya Vikram Birla

Headquarters at Aditya Birla Centre,

Mumbai

Operates in 40 Countries with

120000 employees worldwide

Founded by Seth Shiv Narayan Birla

in 1857

Third Largest private sector

conglomerate with $45 billion revenue

Largest player in cement sector, third largest in

telecom

The G D Birla Phenomena

G D Birla has always been a proponent of free enterprise and capitalism, wherein the private Indian firms can achieve the highest growth possible.

Inception:

In 1912, he was thrown out of a meeting with the English businessmen.When he approached Andrew Yule to convince him to sell off his jute mill, he was mocked for dreaming so big.

GD, a leader in the making:

GD, as a youth leader, became the emissary of Gandhi and other left wing leaders, while also becoming solicitors of the right wing Hindu Swaraj Party, led by Madan Mohan Malviya, Vallabhai Patel and Lala Lajpat Rai.The Birlas were always involved with society and charity – they helped Jamanlal Bajaj set up a Marwari school in Bombay (1912), and set up the first high school in Pilani (1918).

Early Politics and the power of the press:

GD was a member of the legislative assembly as a representative of the Marwari commercial interests.The Birlas acquired Empire and Commerce (1920) and the Bengalee in 1922. From 1924-1927, GD helped run Hindustan Times and took over the finances as well.GD’s proclivity to become a constitutionalist showed in his opposition of the Non-Cooperation movement.He slowly moved towards the moderate party and concentrated more on business commitments.

The story of the Indian Capitalist1930s to 1940s: The realignment with Gandhi and separation from extremist politics:

During this period, GD began to slowly distance himself from Lala and Malviya and finally cut off the ties, although the Birlas continued to remain supporters of nationalism. He became the medium of communication between Gandhi and the British unto the Independence of India. During a period when most national leaders were jailed, he left for Britain and the USA to build ties for the future. He was instrumental in the formation of the FICCI, the body that safeguarded Indian business interests as against the European interests.

GD, a vanguard of capitalist economy:

When Nehru came to power, he began adopting a socialistic model of the Indian economy. As a result the capitalistic model of the economy as opined for by Birla and other business houses never really saw the light of day until 1978, when the Janata party came to power.

Relations with the Indian National Congress:

The relationship of GD with the INC was bitter sweet throughout. Once a staunch ally of Indira Gandhi, GD fell out of favours and became entangled in lawsuits when his advise to IG over devaluation of the Indian rupee resulting in massive public outcry, which resulted in Indira Gandhi’s criticism. During this time, the ties with the US also started growing and under his guidance, India managed to lobby successfully for funding from the World Bank. Lawsuits hit Birlas hard – attributed to stocks being deliberately undervalued, tax evasions and setting up of plants without licenses.

AV BIRLA GROUP COMPANIES

ADITYA BIRLA CAPITAL ADVISORS PRIVATE LIMITEDADITYA BIRLA CHEMICALS (INDIA) LIMITEDADITYA BIRLA CHEMICALS (THAILAND) LIMITEDADITYA BIRLA FINANCE LIMITEDADITYA BIRLA FINANCIAL SERVICES GROUPADITYA BIRLA GRASUN CHEMICALS (FANGCHENGGANG) LIMITEDADITYA BIRLA GROUP POWER PROJECTSADITYA BIRLA INSURANCE BROKERSADITYA BIRLA MINERALSADITYA BIRLA MONEYADITYA BIRLA NUVOADITYA BIRLA RETAIL LIMITEDADITYA BIRLA SCIENCE AND TECHNOLOGY COMPANY LIMITEDALEXANDRIA CARBON BLACKAV CELL INC.AV NACKAWIC INC.

BIRLA JINGWEI FIBRES COMPANY LIMITEDBIRLA LAO PULP AND PLANTATIONS COMPANY LIMITEDBIRLA SUN LIFE ASSET MANAGEMENTBIRLA SUN LIFE INSURANCE COMPANYCAMEROON ALUMINA LIMITEDCOLUMBIAN CHEMICALS COMPANYDAHEJ HARBOUR & INFRASTRUCTURE LIMITEDDOMSJÖ FABRIKERESSEL MINING AND INDUSTRIES LIMITEDGRASIM BHIWANI TEXTILES LIMITEDGRASIM INDUSTRIES LIMITEDHINDALCO INDUSTRIES LIMITEDHINDALCO-ALMEX AEROSPACE LIMITEDIDEA CELLULAR LIMITEDINDO PHIL COTTON MILLSINDO PHIL TEXTILE MILLSINDO THAI SYNTHETICS

LIAONING BIRLA CARBON COMPANY LIMITEDMADURA FASHION & LIFESTYLEMAHAN COAL LIMITEDNOVELIS INC.PAN CENTURY SURFACTANTS INC.PANTALOONS FASHION & RETAIL LIMITEDPT ELEGANT TEXTILE INDUSTRYPT INDO BHARAT RAYONPT INDO LIBERTY TEXTILESPT INDO RAYA KIMIAPT SUNRISE BUMI TEXTILESSWISS SINGAPORE OVERSEAS ENTERPRISES PTE LIMITEDTANFAC INDUSTRIES LIMITEDTERRACE BAY PULP MILLTHAI ACRYLIC FIBRETHAI CARBON BLACKTHAI PEROXIDE COMPANY LIMITEDTHAI RAYONULTRATECH CEMENT LANKA (PVT.) LTD.ULTRATECH CEMENT LIMITEDULTRATECH SUBSIDIARIESUTKAL ALUMINA INTERNATIONAL LIMITED

COMPETITIVE LANDSCAPESECTOR AVBG

PLAYERTOP COMPETITOR

Branded Apparel

Pantaloons Future Retail

Cooper Birla Cooper Hindustan Cooper

Aluminium

Hindalco Nalco

Telecom Idea Bharati Airtel

Carbon Black

Birla Carbon Phillips Carbon Black

Textiles Grasim 3M India

Chemicals Aditya Birla Chemicals

Pidilite

Insurance Birla Sun Life LIC

Cement Ultratech Ambuja Cement

Branded Appare

l

Cooper

Aluminium

Telecom

Carbon Black

Textiles

Chemicals

Insura

nce

Cement0

20000

40000

60000

80000

100000

120000

140000

160000

180000

M-CAP OF Aditya Birla Group VS Competitor

AVBG Player Top Competitor

MAJOR SECTORS

Agri Business

Carbon Black Cement Financial

Services

Telecom Textiles Mining Non-Ferrous Metals

Retail Insulators Ferro chemicals Chemicals

SECTOR-WISE CONTRIBUTION

Copper

Aluminium

Cement

Telecom VSF

Carbon Blac

k

Insuran

ce

Mining

Chemicals

Textiles

BPO

Sponge

Iron

Agri

Insulat

ors

Others

02468

101214161820

Contribution To Group Turnover

% o

f Tur

nove

r

BUSINESS DIVERSIFICATION STRATEGY • Wide political and industry network from

the early days of Seth Baldeodas.

• New technological collaborations were undertaken to modernize the existing units. For instance, Hindustan Motors tied up with Lord Nuffield to manufacture the legendary Morris Minor.

• Diversification also served the purpose of saving tax and retaining profits within the company.

• In-house Training and Internship for Diversification.

• The Birlas got 8 yrs of tax holidays, an eight year holiday for business tax (sales tax), eight year holiday for all remittances of royalties and technical know-how fees which normally attract a 20% tax.

GLOBAL PRESENCE OF THE GROUP:- 120,000+ employees- Operates in more than 40 countries- Revenue - $45 Billion (2014)

DIVERSIFICATION

The variety of business interest of the group covers almost all sectors of the Indian economy

Phenomenal diversification of business across time from the middle of 19th century to early 21st century

The most diversified business in IndiaServed the purpose of saving taxes and retaining profits

within the companyIn 1947, Birla group diversified into insurance, textile

machinery, automobiles, bicycles and plasticsWithin 10 years, they further expanded into engineering,

tea, chemicals, cement, glass ,aluminum, shipping and aviation

In-house Training and Internship

By 1964, the sons and the grandsons of the Birla Brothers were actively involved in the business

They were given free hand to run the businesses independently

Training within the family facilitated very fast diversification

Senior Birlas were consulted for important decisions

CSR Activities of Aditya Birla GroupIt has around 42 schools, where 45,000 children are

provided quality education. Balwadis for elementary educationPulse polio programs, mobile clinics, medical camps

and cleft lipsVocational Training through Aditya Birla Rural

technology parksWatershed development and construction of check

dams in villagesAwareness programs on anti-social issues

Public Goodwill and Takeaways

Keeping a clean image in publicImproves public sentiment to invest in the

companyEnhances the Aditya Birla brand credibilityStrengthens the Group's competitive advantage

through proactive, two-way communication among its multiple internal and external stakeholders.

Collaborative partnerships with government helps it leverage on the strong network of connections

LICENCES AND INCENTIVES

Strong Political Network among national leaders and bureaucrats. Set up 200 companies and 70 manufacturing units in India , South East Asia and Africa

Formed MRPL(JV between AVBG and HPCL. Later sold its stake in MRPL TO ONGC

Received various incentives like Tax, cheap land and resources, public assets through PSU divestment post 1991 period. Birlas also got eight years of tax holidays ,sales tax holiday and a assurance for import duties to be enhanced from 10% to 30%.

1970

1980

1990

HUMAN RESOURCES AND CAPITAL

Highly loyal and efficient professionals were instrumental in setting up and managing over 200 companies in India and South East Asia.

Key persons like Mr S.Mahansaria and Mr M.C Bagrodia played a vital role in Indo-Thai synthetics and a new caustic project of caustic soda plant.

ABMC the advisory body of ABG consists of senior group executives who look after specific sectors. A review council has also been set up to review the businesses of the group.

The Birlas had adequate Capital for new projects and expansion due to G.D Birlas influence over Indian polity and financial institutions.

In 1943 G.D. Birla incorporated the United Commercial Bank.The ABG benefitted from the numerous incentives and financial support by the Government.

Mergers and Acquisitions

Free and Liberal Economy after 1991

Strategy of AV Birla Group to diversify into

different industries

Mergers and Acquisitions

Mergers

• Indal with Hindalco

• Jayashree Textile with Indian Rayon

• ABIL with ABNL

Acquisitions

• Nifty Copper Mine, Novelis , Alcan by Hindalco

• Mount Gordon Copper Mine by ABML

• Aluminium Rolling Mill and Wire rods Facility from ARCIL

• Indian Rayon• PSI Data Systems by Indian Rayon

Joint Ventures

• Almex USA• Essar Power

Ltd.• Sun Life Group• AT&T Group

M&A Strategies

Control over different sectorsDownstream strategy provided a well-diversified

geographical market base and enhances stature in downstream production

Stable cash flowsProvides synergy due to operational relatednessIncrease in the monopoly power of the companiesEntered telecom sector because of the socio-economic

development in IndiaEntered insurance market due to low entry barriers and

low cost of entry

Capital Generation

The group has always maintained its ability to raise capital and expand its business even during the period when capital is short circulation. The company has managed to raise capital through IPOs Rights issue GDR Euro issues Preference share and debentures

Corporate RestructuringThe group went for reorganising in the ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its needs

• Undertook a major restructuring by selling stakes in Indo Gulf Fertilizer and then acquired controlling stakes in Indal. Hindalco raised INR 2226.6 crores in 2006 (from it originally planned over INR 5000 crores, Rights issue) by offering the Rights Issue. This capital raised was largely to acquire Novelis

• Its investments spans across a number of new businesses viz., financial services, telecommunication, insurance, garments, etc.Nuvo’s subsidiary, Idea Cellular, the telecom company is the largest group companies

• Grasim in 1992 raised USD 90 million through its GDR issue

Grasim : CSF of Textile IndustrySUPPLY CHAIN

Strong, Integrated, lean Separate departments for a) Production planning, scheduling and warehousing.B) Transportation & freight management, Inventory management & control

SCALE OF OPERATION Very Higha) largest production unit : Nagda, Harihar, Kharach etcb) International : Birla Jingwei Fibres Company Limited in China

RAW MATERIALS Higha)Abundant :largest cotton acreageb) yarn producers (Open--ended yarn , fabric Ring yarn ,fabric Textured yarn)

TYPE OF INDUSTRY Labour-intensivea) Highest loomage in the world with contribution of more than 60 per cent to world

LABOUR High Availabilitya)Availability of skilled labour and low labour costsb) Cost advantage over other countries

CONSUMER DEMAND High a)Consuming class is 80 per cent of the population b) Disposable income increasing at increasing rate

GOVERNMENT SUPPORT Supportive Technology Upgradation Fund Scheme (TUFS)

COMPETITIONHigha) Fragmented industryb) Supportive policiesc) Growing domestic and exports opportunitiesd) Entry of MNC players

Hindalco: CSF of Manufacturing IndustryCOST AND CAPITAL High

a) Aditya smelter: world beating cost structure b) Raw material: High imports, e-auctions and mines that are located at a greater distance from its smelter comparedc) Following integrated business model and economies of scale

OPTIMIZING TECHNOLOGY

Higha) Smelter-power plant complex at Lapanga in Sambalpur360,000 tonnes smelter : 6 x 150 MW coal : captive power.b) R&D : Two centres at Belgaum and Taloja, both recognised by the Department of Scientific & Industrial Research (DSIR)c) 46 percent of Hindalco's aluminium product portfolio comprises VAPs, i.e. Flat Rolled Products (FRPs) and extrusions.

RELATIONSHIP WITH STAKEHOLDERS

a) Social, environmental and economic benefits for the communities b) Waste generation and land fillingc) Community resources and rights

CUSTOMER SATISFACTION

Higha) The Service Centre Network: for deeper market penetration and rural reachb) Total Quality Management (TQM) and Environment Control (EC) cell: customer-driven quality an enterprise-wide endeavour

LOCATIONAL ADVANTAGES

Higha) operations: 10 states and one union territory in India: 600 ktpa of aluminium.Renukoot in Uttar Pradesh, Belur in West Bengal, Silvassa in the union territory of Dadra and Nagar Haveli, Hirakud in Odisha

HINDALCO

Aluminium:

Automotive and transportCeramicsChemicalsBuilding and constructionDefenceElectricals and electronicsIndustrial applicationsPaintsPharmaceuticals and packagingRefractory

Copper:

Agrochemicals Automotive and transportConsumer durablesElectrical equipmentRailwaysWire and cable industry

Performance of Hindalco

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

10105.33

87695.49

Revenue in INR Crores

Average Growth Rate: 37%

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

5000

10000

15000

20000

25000

30000

35000

40000

45000

12001.71

29255.38

M-CAP in INR Crores

ALUMINIUM INDUSTRY ANALYSISSupply

Supply of aluminium is in excess and any deficit can be imported at low rates of duty. Currently, the demand is stable while supply is in excess. 

DemandDemand for aluminium is estimated to grow at 6%-8% per annum in view of the low per capita consumption in India. Also, demand for the metal is expected to pick up as the scenario improves for user industries, like power, infrastructure and transportation. 

Barriers to entry

Large economies of scale. Consequently, high capital costs.

Bargaining power of suppliers

Most domestic players operate integrated plants. Bargaining power is limited in case of power purchase, as Government is the only supplier. However, increasing usage of captive power plants (CPP) will help to rationalize power costs to a certain extent in the long-term.

Bargaining power of

customers

Being a commodity, customers enjoy relatively high bargaining power, as prices are determined on demand and supply.

CompetitionCompetition is primarily on quality and price, as being a commodity, differentiation is difficult. However, the recent spate of consolidation has reduced the competitive pressure in the industry. Further, increasing value addition to aluminium products has helped some companies protect themselves from the high volatilities witnessed in this industry.

PROSPECTSChina has been a marginally surplus producer of aluminium, while India turned aluminium deficit in 2011 after being a marginal surplus producer for many years. However, commissioning of new capacities will make India surplus in aluminium in the near future. 

Long term outlook for aluminium continues to remain strong with Global aluminium demand expected to increase at a CAGR of 6%, with expected growth of 9% till 2020. This growth rate, though strong, pales in comparison with the stupendous rate at which Chinese aluminium consumption has grown over the last decade. 

Refined Copper Production Capacity

India is net exporter of refined copper and importer of concentrate. All major deposits explored in sixties and seventies 100 million tonne ore required for meeting installed smelting/refining

capacity against annual production of 3 million tonne. Huge opportunity exists in green field exploration & development of new

mines.

FinancialServices

29%

Telecom29%

Fashion & Lifestyle

26%

MFG16%

Revenue Share

Aditya Birla NUVO

1995 2014Revenue USD 0.2 billion USD 4 billion

Businesses 5De-risking through portfolio of 14 business

segments representing varied sectors of Indian Economy

Market Cap USD 0.3 billion USD 3.5 billionBrands ~6 ~30

Employees ~ 13,500 Anchored by strong management teams & about 49,000 employees

Invested ~ USD 1.5 billion over these years to support growth Anchored by a strong Management Team

The holding company of several companies of the group has diversified by acquiring new businesses and entering afresh into new businesses. Highly diversified portfolio of businesses

1989-2008, grown from an asset base of INR 503 Cr to INR 7693 Cr that is 1500 %

AB Nuvo plans to float a holding company that will control all the financial and banking business of Nuvo 18.

ABNL- Highlights and Strategies

Idea CellularMarket Capitalization USD 10 billionPan India revenue market share Ranks 3rd, at 17.1%Total Minutes of usage 1.77 billion minutes per daySubscribers 144 million

•Joint Venture Between Birla and AT&T•Winner of 3G spectrum in 11 service areas which contribute more than 73% of Idea’s rev•Idea holds 16% stake in the world’s largest Indus Towers Received capital•Infusion of ` 3,750 Cr in June-July, 14 through QIP and Private Placement

0

5000

10000

15000

20000

25000

30000 Sales, 26432 Cr

Sales

BCG Matrix for ABNL Divisions

0.30.40.50.60.70.80.911.1

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Relative Market Share

Indu

stry

Gro

wth

Rat

e

STAR QUESTION MARK

DOGSCASH COWS

Telecom

Asset Management

FashionInsurance

Manufacturing

Strong execution and a clear focus quality of service and consumers

Encourages risk taking, R&D and Innovation Focus on meritocracy. Talent pool developed through a series of

planned exposures, assignments and training opportunities (programmes namely “Step UP” and “Turning Point”)

Running low cost, highly-efficient and vastly productive operations, through our embedded culture of continuous improvement and innovation

New Initiatives like Wi-Fi, 3G and establishing itself as a brand driven by a cause. making mobile telephony a way of life

The management regularly follows the process of risk identification, risk evaluation, risk prioritisation and development of risk mitigation plans

Major Challenges- Idea Cellular

regulatory decisions - The February 2012 license cancellation by the Supreme Court

November 2012 1800 MHz spectrum auctions with a very high regulator recommended reserve price

High costs: cost and manpower intensive ‘new subscriber acquisition process’ was introduced

Strategies: Idea Cellular

ADITYA BIRLA GRASIM•Grasim Industries Limited is an Indian building materials manufacturing company based in Mumbai, Maharashtra

•The company is a subsidiary of Aditya Birla Group.

•In business of viscose staple fibre, rayon grade pulp, textiles, chemicals and cement.

•Grasim is the world's largest producer of viscose rayon fibre with about 24% market share.

•In 2003, L&T demerged Ultratech Cement and Grasim acquired majority stake in it.

•Post liberalization, raised US $90 million through GDR issue in 1992 and another US $ 100 million in 1994.

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

5000100001500020000250003000035000

Net Revenue

Net Revenue

GRASIM DIVISIONSUltraTech Cement• Grey Cement• White Cement• Putty

Viscose Staple Fibre (VSF)• Largest producer• 19% global share

Caustic Soda• Capacity of 452K TPA

Grasim Bhiwani Textiles Limited• Grasim and Graviera branded suitings

BCG MATRIX OF MAJOR BUSINESS

1.71.751.81.851.91.95

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Relative Mkt Share

Relative Mkt Share

FUTURE PLANS:Cement and VSF businesses most promising –

Grasim expanding in these sectors.

120,000 tpa VSF project, at Vilayat in Gujarat, is being commissionedProfitability on VSF falling due to oversupply from ChinaAcquisition of the 4.8 Mn. tpa Gujarat Cement Unit of Jaypee Cement

Corporation Limited by UltraTech Cement Limited.UltraTech commissioned – a 10,000 TPD clinkerisation plant together with a

cement grinding capacity of 1.45 Mn. tpa at Rajashree Cement, Karnataka; a 1.6 Mn. tpa cement grinding unit in Odisha; and Thermal Power Plants of 30 mega watts at Rawan Cement Works and 25 mega watts each at Rajashree Cement and Andhra Pradesh Cement Works.

Company’s Cement business’ installed capacity has been scaled up to nearly 62 million tons

Thank you