K.M. Birla does a U-turn on India as PM Modi boosts economy

Abhishek Shanker, George Smith Alexander and Bhuma Shrivastava
Mint
13 November 2014

Birla says the renewed focus on India means the country will be the first his group considers for investments

Less than two years after calling India a risky place for investment, billionaire Kumar Mangalam Birla has changed his mind. The reason: Prime Minister Narendra Modi.

"There's a new sense of excitement," Birla, 47, who heads India's $40 billion Aditya Birla Group named after his father, said in an interview in Mumbai. "From not being there on our list of potential countries to invest in, to coming right back up on top again—that is a big deal."

In a March 2013 interview to Bloomberg TV India, Birla, who runs companies from the world's largest rolled aluminium maker to India's biggest cement producer, had said he preferred Brazil and Indonesia because frequent policy changes at home were scuttiing investment plans. Modi, who swept to power in May, is seeking to rekindle growth by making India a manufacturing powerhouse with a Make In India campaign.

The government has pledged to press ahead with amending land, labour and foreign investment law to make it easier for companies to do business after taking steps last month to curb fuel subsidies.

The renewed focus on India means the country will be the first the group will consider for investments, Birla said. India accounts for about half of his group's revenue. The share is likely to increase if he spends more on his businesses that include retail, telecommunications and mining.

Back in focus
"In the next five years, when we make an investment decision as opposed to not looking at India, India will be a preferred destination," said Birla, who is India's seventh richest person with a net worth of $7.1 billion, according to the Bloomberg Billionaires Index. "India, very rightfully, has come back into focus."

The $1.9 trillion economy may expand 6.3% in the year through March, the International Monetary Fund (IMF) says, rebounding from last year's 4.7%, which was near the slowest in a decade. By 2016, a growth rate of 7.2% will surpass China's 7.1%, according to Rajeev Malik, a Singapore-based senior economist at CLSA Asia-Pacific Markets.

The Birla group operates in 36 countries, including the US, Brazil, South Korea and China. It is currently working on finishing projects in India that include two aluminium smelters of 360,000 tonnes each, captive power plants and expanding cement capacity.

"I see India's share staying at least 50% and maybe going up a little bit because the investments we have made in India are far more bulky," Birla said in the 10 November interview.

US plans
After its biggest acquisition in 2007 when it bought Atlanta-based aluminium sheet maker Novelis Inc. for an enterprise value of $5.8 billion, the group is keen on expanding in the US, Birla said.

"The US has worked well for us," Birla said, referring to businesses that produce lightweight metal sheets for vehicles and beverage cans. "In the US, unlike what has happened in the past in India, politics and economics are completely divorced. That's what we in India should aspire for and that's what this new government will look to do."

The group will consider new investments in manufacturing in the US as cheaper energy and ease of doing business there makes it an attractive manufacturing destination, Birla said, adding there are no concrete plans yet.

In 2013, Birla had said the group was considering buying a fertilizer plant in the US to benefit from falling energy prices.

Cement in sight
Birla is open to mega-cement deals overseas, on the lines of Novelis.

The group may look to buy some assets being sold by Holcim Ltd and Lafarge SA after their merger, while also being open to acquiring factories abroad, he said. He is also looking at either purchasing an e-retailer or building one from scratch, he said.

Holcim and Lafarge are selling units with an enterprise value of €5 billion to €7 billion, as they seek antitrust backing for a planned global cement giant with about $40 billion revenues, two people said on 14 October.

Birla is s;electively bidding for the Brazil and Philippine assets of Holcim and Lafarge, a person familiar with the plans said on 19 October, asking not to be identified citing company policy.

He expects the group's cement capacity to rise 61% to 100 million tonnes in a decade. Group company UltraTech Cement Ltd, India's largest cement maker, agreed last year to buy Jaiprakash Associates Ltd's cement factory in Gujarat for an enterprise value of Rs 3,800 crore.

Shares of UltraTech have rallied 50% this year, compared with a 32% gain in the benchmark S&;P BSE Sensex — making it the best performer among the world's 30 biggest markets.

Coal
The group is also interested in international coal assets, said Birla. It had made offers for Australian coal producers New Hope Corp., Aquila Resources Ltd's Washpool coking coal mine in 2011, people familiar with the matter have previously said.

"We had looked at deals then and we are constantly looking at deals in specific sectors, but nothing materialized because we didn't think there was anything that met our requirements in terms of size," said Birla. Asia Pacific, the Indian Ocean rim and South America are the regions that the company is keen on, said Birla. The company will also look at assets in India, he said.

For Birla, acquisitions are not an end in itself. They must match the group's value-creation criteria, he said. "There is no desperation to buy international or Indian assets. In the last 10 years, we have gone from nowhere on the global map to being No. 7."

Red tape
Red tape could still derail Modi's plans to make the country a global manufacturing hub. Delays in permits are forcing Tata Steel Ltd and state-owned Steel Authority of India Ltd to close some of their top mines.

"The wider perception is that the new government is much more reform-minded and business-minded," said Shilan Shah, an economist at London-based Capital Economics Ltd. "Although some progress will be made, they may fall slightly short of expectations," because Modi's ruling party doesn't yet control the upper house of Parliament, he said.

India's Supreme Court in September cancelled more than 200 coal mine permits tainted by graft allegations, risking at least $47 billion of investments in power plants and smelters. Reclaiming lost blocks in new bidding may increase production costs, Birla said.

Policy flip-flops during the previous administration drove Vodafone Group Plc. to a long drawn litigation over tax claims, while land disputes and delays have stalled a $12 billion steel mill planned by South Korea's Posco almost a decade ago.

India slipped three levels in the 2013 World Economic Forum's Global Competitiveness Index from a year earlier to 59, ranked behind Costa Rica and Kazakhstan. Brazil stood at 48, while Indonesia was 50.

Spirituality, succession
Birla said he gains "broader perspective" from his spiritual guru with whom he has weekly sittings and discusses the Bhagavad Gita, a Hindu scripture. "It has helped me become more detached at work."

Calling a succession plan a "misallocation of time", he said, however, that he would be glad to have his daughter, Ananyashree Birla, in the family business. "I'll be very happy if she comes to work with me, but I am not setting my expectation on that."

— Bloomberg
(Jeanette Rodrigues in New Delhi and Ravil Shirodkar in Mumbai contributed to this story.)

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