Grasim
going forward — a cement major
As
highlighted earlier, Grasim is emerging as the largest
producer in India. The Grasim-CemCo combine will
be amongst top three producers in almost 80% of
the cement consuming markets in India. This we believe
will offer significant strength in our value journey
going forward.
Grasim
going forward — a strong play on India's growth
story
Importantly,
the strong operating leverage and the leadership
position make it a strong play on India's growth
potential. Given the likely strong growth in the
economy and increasing thrust on infrastructure
development, we see exciting opportunities in the
cement sector. The likely demand-supply balance
in the foreseeable future should help us improve
returns from this business, which incidentally,
is the largest business segment of the company.
Our
focus will be on further strengthening of our
market position and sustaining leadership by leveraging
the combined strengths of Grasim and CemCo. We
will leverage our brands and distribution assets
optimally towards this end. Our cost competitiveness
will be further enhanced by the possible synergies
with CemCo. The continuing strong cash flow from
the VSF business will add further strength.
We
thus remain confident of delivering superior returns
on a sustained basis even in the future.
Transformation
of Hindalco
Moving
to Hindalco, as discussed, we have strategically
strengthened the aluminium business through brownfield
expansions and the Indal acquisition. While these
helped us achieve leadership across the value chain
domestically, we do realise the need to achieve
size and scale in the global context.
Likewise,
in copper, we are building size and competitiveness
through a low cost brownfield expansion, which
will be commissioned soon. The planned further
expansions will transform Birla Copper, our copper
smelter, as one of the largest custom copper smelters
in the world.
Simultaneously,
towards further enhancing competitiveness and
tapping the value chain optimally, we have ventured
into the copper mining arena recently. This we
believe will help us sustain superior returns
even in the future.
Significant
value enhancement since restructuring
As
in the case of Grasim, our transformation efforts
in Hindalco have helped us unlock significant value
for shareholders. The stock has appreciated by over
78% since the restructuring of the metals businesses
in July 2002. Even more important is the fact that
the company has delivered an annual return of over
26% over the last five years, against a Sensex return
of only 12%.
Hindalco
— leveraging regional growth potential
Going
forward, we see exciting growth prospects for Hindalco.
In aluminium, we see opportunities both in the domestic
and the regional markets. Led by China, Asia is
the fastest growing aluminium market in the world.
Notwithstanding capacity increases, Asia will remain
a deficit zone in the foreseeable future. This provides
opportunity for Hindalco, both in metal and alumina.
Meanwhile, we see an equally exciting long term
outlook for the Indian markets, given its low per
capita consumption and improving outlook for the
end use sectors, like power, automobiles and construction.
A
similar opportunity exists even in copper, where
India is uniquely positioned due to its proximity
to the high growth markets of Asia. The agrarian
nature of the Indian economy provides scope for
adding value to by-products, the disposal of which
is usually a significant drag on copper smelting
operations elsewhere in the world.
Hindalco
is uniquely positioned to capitalise on the emerging
opportunities, both in aluminium and copper. The
company's globally competitive cost structure,
sustainable strategic advantages and growing export
presence will provide strength. The ongoing strategic
initiatives will further reinforce our ability
to capitalise on the emerging opportunities while
sustaining superior returns.
Indian
Rayon: emphasis on growth avenues
Indian
Rayon, too, has been a beneficiary of our restructuring
efforts and has witnessed significant activity during
the last five years.
Subsequent
to the restructuring of the cement business, we
focused on furthering our competitiveness in the
existing businesses of VFY, carbon black and insulators.
This was achieved through a combination of low
cost brownfield expansions, quality and brand
orientation and through the setting up of joint
ventures with global majors towards unlocking
value potential. Exit from value destructive businesses
was integral to this strategy.
While
these helped us strengthen cash flows from traditional
businesses, they offered limited growth prospects.
Given this constraint and the need to invest in
growth businesses of the future, we pursued new
opportunities. The acquisition of Madura Garments,
entry into the newly opened insurance sector and
the recent foray into the software and BPO sectors
were the results of these initiatives.
While
propelling growth, these strategic moves helped
in achieving a balanced portfolio. Even more importantly,
they have transformed Indian Rayon giving it leadership
position in promising growth sectors of the future.
Indian
Rayon: delivering strong return to shareholders
Apart
from building a growth portfolio, the transformation
efforts led to a marked improvement in the financial
performance of the company, as can be seen from
the chart here.
Improving
returns and the benefits of transformation efforts,
characterised by the changed growth outlook and
leadership position in emerging new growth sectors
have helped in unlocking significant value for
our shareholders.
The
value of Indian Rayon has appreciated by nearly
900% since the beginning of the restructuring
process in 1998. In other words, the stock has
delivered an annual return of 36% in the last
five years and over 134% during the last year.
This, we see, as an appreciation of our value
creation efforts by our shareholders.
Indian
Rayon: creating a strong growth platform for the
future
Through restructuring and portfolio management efforts,
as discussed, we have created a strong platform
for growth in Indian Rayon. The traditional manufacturing
businesses will continue to deliver value, but growth
will likely be fuelled by the performance of the
new businesses.
The
garments business is poised for significant growth
in the future. The removal of quota restrictions
will provide new opportunities. Madura Garments
is poised to benefit significantly given its brand
equity, enviable market strength and growing focus
on costs.
The
insurance business is likely to be another growth
driver for Indian Rayon. Within a short span of
time, the business has built leadership position
in the high potential life insurance market in
India. Today, we are the second largest private
insurance company in terms of the number of policies
and the leader in terms of the per policy premium
income. We are confident of success in this venture,
which will contribute significantly towards the
creation of superior value for Indian Rayon shareholders
in the future.
Indo
Gulf: restructuring helped unlock significant value
Benefiting
from the restructuring efforts, Indo Gulf has emerged
as a focused fertiliser entity. Its shareholders
have benefited from the re-rating of its copper
earnings at Hindalco and also gained from the impressive
returns generated by the new fertiliser stock.
Indo
Gulf is one of the most efficient and amongst
the lowest cost producers of urea in the country.
This strength of operations and the cash rich
balance sheet, place it in a unique position towards
capturing value creating opportunities in the
sector.
We
see attractive long term potential given the agrarian
nature of our economy and growing demand for food
grains and farm nutrients. However, short term
prospects are marred by regulatory uncertainties
and feed stock issues. Any favourable change in
these will throw up significant growth opportunities
for us. In the interim, we will leverage the strategic
strengths of its location, costs, brand equity
and distribution network to extract maximum value
from this business.
Widespread
recognition of our efforts so far…
Ladies and gentlemen, I have shared the Group's
value creation framework and how we have employed
it successfully across companies towards transforming
them as global sized, globally competitive operations,
while delivering superior returns simultaneously.
Our significant efforts have been commended by the
capital markets and the financial media positively
in recent years.
While
we are happy with the progress so far, we are
cognisant of the fact that the journey has just
begun. We remain committed to the creation of
superior shareholder value across all our companies
in the future and push forward to some exciting
times as our Group faces up to the challenges
of the future.
I
do hope that you will stay invested with us on
what promises to be an interesting voyage.
Thank You
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