Customerise
— building a strong brand and moving closer
The third leg of our value creation strategy has
been to customerise operations. We have come a long
way in this regard — from the license raj,
where whatever was produced could be sold, to an
economy where production has to be attuned to the
market needs.
In
the first place, instead of being producers of
commodities, we have sought to become solution
providers for our customers. As a consequence,
we have consciously focused on branding of our
commodities and going up the value chain to come
closer to the end customer.
Strategise
— consistent theme in a dynamic environment
The
fourth leg of our value creation framework concentrates
on strategisation efforts. Through decades of operational
excellence, we have built competencies that provide
significant strength across businesses. However,
the changing business dynamics demand new traits
like size, scale and global competitiveness. Towards
this end, we have adopted a three stage approach:
-
Firstly, extract value from existing competencies
through initiatives like portfolio restructuring
and low-cost brownfield expansions.
-
Secondly, achieve scale and size through acquisitions
and
-
Finally, invest in growth businesses of the
future
Through
concerted efforts and rigorous implementation
of this framework, we have built some global sized,
globally competitive businesses within the Group.
I would like to elaborate with a few specific
examples now.
Strategise
— significant progress in recent years (cement)
Let
me start with the cement business.
Towards
building on existing competencies, we restructured
the cement businesses of the Group by consolidating
it under Grasim during 1998. This, in fact, triggered
the consolidation process in the Indian Cement
Industry.
While
synergising operations, our thrust was also on
sweating assets through de-bottlenecking and blended
cements. These, coupled with smaller acquisitions
helped us emerge as the third largest producer
in India.
However,
keeping in view of the exciting opportunities
in the sector, we decided to build size and scale
and thus pursued the acquisition of L&T Cement.
Its successful completion will catapult Grasim
to the largest producer in India and the 7th largest
in the World.
Strategise
— significant progress in recent years (metals)
Likewise,
in metals, we took concerted actions to transform
Hindalco into a regional metals major. Having built
on competencies through low cost brownfields, we
embarked on an inorganic opportunity in Indal to
augment our presence in the upstream and downstream
segments of aluminium.
Further,
keeping in mind the changing face of the non-ferrous
metals sector, both in India and globally, we chose
to build size and scale while enhancing our competitiveness
further. We thus embarked on a landmark restructuring
that brought the copper business into Hindalco during
2002. To enhance our competitive position further
and capture a greater share of the copper value
chain, we have forayed into copper mining. We believe
this will help create superior value in the future.
Strategise — significant progress in recent
years (new businesses)
Our
focus was not just restricted to the traditional
businesses, but equally on building strength in
emerging growth sectors. The acquisition of Madura
Garments was the beginning and it has propelled
us to the leadership position in the high growth
branded garments sector. Our entry into the BPO
segment is with a similar objective.
Result
— focused companies with identified growth
businesses
Through the concerted adoption of the value creation
framework and relentless pursuit of clear strategies,
we have now built companies that are better focused
with clearly identified growth avenues.
Going
forward, Grasim will remain focused on cement
and VSF, Hindalco on metals and Indo Gulf on fertilisers.
Indian Rayon will remain a conglomerate, but with
a balanced portfolio of businesses in the manufacturing,
brands and services sectors.
Result
— superior shareholder returns across companies
What is more encouraging for us, is the recognition
of our transformation efforts in the capital markets
by investors like you. The growing appreciation
is evident from the strong outperformance of the
Group stocks, whose combined market capitalisation
has appreciated by over 32% annually during the
last five years against the Sensex returns of only
12% during this period.
Let
me now demonstrate how we have effectively employed
our value creation framework across the listed
companies and created some global sized, globally
competitive operations within them.
Transformation
of Grasim…
Grasim has been the biggest beneficiary of our renewed
value focus, witnessing significant activity, both
restructuring and acquisitions, during the last
five years.
Towards
building on existing competencies, in the VSF
business, we embarked on a Greenfield expansion
at Kharach in Gujarat. This, coupled with
de-bottlenecking operations, catapulted Grasim
as the largest VSF producer in the world, giving
it a significant competitive advantage.
While
doing so, we also embarked on several other initiatives
towards enhancing focus on core businesses. These
included the closure of the unviable pulp and
fibre operations at Mavoor in Kerala, sale of
fabric units in Gwalior, exit from non-core operations
like trading and significant financial restructuring.
Towards
enhancing focus on the cement business, apart
from these restructuring efforts, we concentrated
on de-bottlenecking and increasing the proportion
of blended cements while also strengthening cost
competitiveness through the setting up of captive
power plants. Simultaneous focus was also on building
brands and strengthening our market position.
Finally, towards building size and scale in this
promising sector, we have embarked on the acquisition
of L&T Cement that has transformed Grasim
as a cement major.
...has helped unlock significant shareholder value
The
process of transformation has led to an impressive
rise in returns during the last five years. Grasim's
ROCE has moved up from 11% to 17% while ROE has
risen even more strongly from 7% to 17% during this
period.
We
believe that the transformation process has contributed
significantly towards unlocking of the shareholder
value at Grasim. The stock has delivered an annualised
return of 48% over the last five years, thereby
outperforming the Sensex significantly.
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