Decisive and diversified

Kumar Mangalam Birla continues to reshape the conglomerate founded by his father, with a focus on businesses in which it can be a leader

Many critics wrote off Kumar Mangalam Birla when he took the helm of one of India's leading businesses as a 28-year-old rookie. But the reviews in recent years have been mostly positive for the man who has helped build a conglomerate that is among the world leaders in the fields in which it operates.

"Some sections of the press had written me off but in retrospect when you think about it, when you are 28, relatively inexperienced, fresh from completing an MBA, and you take charge of such a large conglomerate in such unfortunate circumstances, then some of that scepticism and negative vibe is quite natural," the chairman of Aditya Birla Group reflects during a talk withAsia Focusin Bangkok.

Now nearly 50, Mr Birla is one of India's richest people and his group's annual turnover runs close to US$42 billion, with $60 billion a possibility in the next couple of years. That is a far cry from the $2-3 billion the group had 22 years ago when he was catapulted to the top position after the sudden passing of his father, Aditya Birla, after whom the group is named.

Aditya Birla Group at the time was purely a manufacturing concern but in the past two decades it has been transformed into a diversified entity with interests ranging from manufacturing to retail, telecoms to finance. Its guiding philosophy is to be the leader in every field it operates in.

"We want to be number 1, 2 or 3 in India (in every business segment in which it has a presence). Otherwise we would question why we are in that business," says Mr Birla who will turn 50 on June 14.

The group has been on an acquisition spree in India over the past 12 months. Noteworthy deals include the 162-billion-rupee ($3 billion) acquisition of Jaypee Cement with annual capacity of 22 million tonnes, and the $23-billion merger of the company's Idea Cellular with Vodafone (India). Announced last month, the deal will c;reate the world's second-largest mobile subscriber base of 400 million users.

"Scale and size are very important to me," Mr Birla admits, adding that a superior return along with good corporate governance are key aspects he looks at when evaluating opportunities.

"If it was a very highly splintered industry and, say, in five or 10 years from now you would be one out of 100 players, then that does not interest me."

But Mr Birla's path to the current level of success was not an easy one. After the sudden passing of his father in 1995, the young MBA graduate was pushed into business at a time when the Indian economy was just opening to foreign competition.

The dismantling of the country's notorious "licence raj" in 1991 led to an influx of new foreign direct investment, and business families such as the Birla Group were threatened by the newcomers.

"India was in a phase where the economy was opening up and if we decided to remain a pure-play [manufacturing] company then we would be shutting out many profitable opportunities," he says.

As various sectors were liberalised, Mr Birla says his team studied the opportunities and "we took well-calculated risks".

Indeed there were risks, as the group would be expanding into areas where it did not have expertise, such as life insurance, retail, telecoms and business process outsourcing (BPO). Mr Birla says the decisions were not taken lightly.

"We identified sectors that were sunrise sectors such as life insurance, retail and telecoms and we did a very deep analysis, and I believed that we could become very significant players going into the foreseeable future," he says. And even if the group did not have the skills, they could be acquired.

The new industry landscape in India also meant that the skill sets required were going to be different from those his father and his peers had built up, and with competition in the sectors heating up, it fell to Mr Birla to make the change.

YOUNGER OUTLOOK

One of the very first moves he made when he took the helm of the company was to strictly enforce the retirement age of 60 years. This, he says, was intended to promote agility and new blood in the company, and also to signal to talented young people joining the firm that their career paths would not be blocked if they had what it took to advance.

"The move was hugely disruptive in those days, and it was more to stay contemporary and more to get skills at that point, to succeed then and for the future, that really was the driving factor on the people front," he says.

"We wanted to give visibility on the career front to the younger people and that is the reason for the retirement age: it was all a drive with the single focus of creating a more vibrant, contemporary organisation."

The changes started from the top and included key board members overseeing operations in India and markets abroad including Thailand. The entire composition of the board was changed in the first five years after Mr Birla took over the company. The goal, he says, was to obtain superior returns and to be a player of significant importance in each industry.

At the same time, Mr Birla does not shy away from tough decisions when businesses do not meet the investment standards set by the group. This was evident in the decisions to exit BPO and spinning, for example.

"The only sector that we did not succeed in was BPO. I would not say that it was a failure but I think the growth was much lower than what we had expected," he admits, while adding that the group sold the business for a good return on its original investment.

One business Mr Birla exited was a brand-new plant to extract magnesia from seawater, which the group had started in Indonesia soon after he took the helm of the company. It was shuttered just two months after starting commercial operations.

"I made the call to cut losses and get out as it was a new business and trying to gain expertise in the new field would take a lot of time and funding," he says.

Apart from this, he got out the very fragmented spinning business that was once the bread and butter of the group, saying that the returns — "if we were willing to invest" — were very "unattractive".
Meanwhile, the group was gradually moving more toward mergers and acquisitions (M&;A) to grow in size and scope.

"We started to grow inorganically through M&;A, something that was not so frequently used in the past in India to grow," he says.

It was becoming clear to longtime observers as well as those inside the group that the kinds of decisions its new chief were making were more aggressive than those seen in the past. That further reinforced the need to bring in younger blood and people with new perspectives to drive the growth of the company.

INDIA FOCUS

Although it was one of the pioneering Indian investors abroad, embarking on its first ventures outside home turf in the 1960s, Aditya Birla Group continues to see about 60% of its $42 billion in revenues generated in India. Although it operates on nearly every continent, it continues to have some India-specific industries.

Mr Birla expects that the group will continue to operate cement, retail and mobile ventures almost exclusively in India, although it does have a 3-million-tonne capacity cement plant in the United Arab Emirates. The group is currently the largest cement maker in India with a capacity of nearly 90 million tonnes per year and it is among the top 10 players globally.

"I think that if the economy (of India) is growing at 7-8% a year and you apply a factor of 1.2 times, you will see the cement business growing at 10%. It is a business we understand thoroughly and we have a very valuable brand in UltraTech," Mr Birla says.

But despite being the top player in India and with two major acquisitions (L&;T and Jaypee) since he assumed the leadership, his aim at the moment is to integrate the latest acquisition, debt-ridden Jaypee Cement, which has an annual capacity of 22 million tonnes. By December 2018 the group should start to see the benefits, he believes.

India, he says, continues to remain a very promising infrastructure play as new roads, bridges and other megaprojects are either being built or replaced.

Meanwhile, the recent merger of the two telecom businesses has been making headlines around the world. But despite the fanfare, Mr Birla, who will become the chairman of the new entity, says his company will remain focused on India.

"In a market that is cutthroat in terms of tariffs it gives us access," he says, adding that with 400 million customers the two companies combined will have more leverage and "huge synergies" in terms of capital expenditure and operating expenditure.

The two merged entities, which are still awaiting regulatory approvals, complement each other in terms of their market footprint. Vodafone caters to more of the urban and metropolitan customer base while Idea Cellular is stronger in the second-tier cities of India. "So there are many synergies that make it a very strong win-win."

Adding to the winning formula is the potential to tap into a mobile customer base of 400 million to help market Birla's fintech product, My Universe, which recently won a payment bank licence from the Reserve Bank of India after years of waiting.

All this, coupled with the explosive growth of data demand in the country, will be a growth driver in other fields from healthcare to education, he says.

The telecom business will remain very much India-focused and unlike its nearest rival Bharti Airtel, he does not see the company expanding beyond the Indian border.

The same goes for the retail business, in his view.

"Some businesses, yes, but some are restricted to India," he says when asked whether his business philosophy to be among the top three players applied on a broader scale. "For example our telecom business is India-focused, our retail is India-focused and therefore it is unrealistic to have a global ranking."

LOOKING AHEAD

With more than 130,000 employees in more than 35 countries, Mr Birla says he sees a good future for every business segment that his group is operating at the moment, including the financial sector, cement and metals, apart from others.

The group is the world's largest producer of carbon black, a product used in tyres, it is the world's largest staple fibre maker and the world's largest aluminium rolling company.

"Ten years ago we bought the largest aluminium rolling company in the US based in Atlanta (Novelis) for $6 billion. We actually got a dividend back in the first three years after acquiring it, but now it has caught the fancy of investors," he says of the business run by subsidiary Hindalco Industries.

"So it has been a very large and successful acquisition but we kept a low profile about it."

Even after so many acquisitions, Mr Birla says his door is still open to growth going into the future, either via a greenfield operation or M&;A, but he does not want to set specific targets.

"No, no we are way too large and diversified. [With] so many unknowns in the world out there, it is very tough to have credible targets," he responds when asked if he had a specific year in mind for reaching $60 billion in annual revenue.

"That is an internal target we set for ourselves and it is difficult to put it out in the world and then chase it as there are so many things that are uncertain in the world."

He says the group has already achieved some other important targets in the sense that it is considered to be offering "superior returns, being an employer of choice, with size dominance and good corporate governance".

SUCCESSION

Having raised the profile of the company and lifted the company's revenues more than 15-fold in the past 20 years, Mr Birla will soon face the challenge of laying the groundwork for a new generation, though he is still relatively young. He says his hope is that all three of his children would "eventually" join the business but at the moment it is too early to start actively planning for succession.

"I'm not even 50 yet, so it's a little early to start to think about it," he says, adding that planning succession 10 or 15 years ahead is not an easy task.

"If you ask me instinctively then I would say all three (children) would be in the business but having said that, can I plan on this? I cannot."

But signs of interest in entrepreneurship are visible in his eldest child, Ananya, who has already had some successful ventures. Now 22, she started a microfinance company called Svantantra Microfinance at age 17, something that has made her father proud.

"She has been doing a startup in microfinance that she has been doing pretty well," he says with a smile.

Ms Ananya has since moved on to try different things in life including pursuing singing, something that would have been considered taboo not too long ago in the traditional Marwari family.

"She's also pursuing music as a passion and she sees it as a potential career as well, and she's doing well in both (singing and business)," says Mr Birla.

"We always wanted our children to be very independent minded and to pursue their passions as long as they are willing to stay committed and work hard with integrity. So it's very good to see this new generation that is multi-faceted rather than being put into a few slots."