Kumar Mangalam Birla, chairman of $41 billion Group on Thursday announced the merger of Aditya Birla Nuvo Ltd (ABNL) with Grasim Industries Ltd to restructure the complex operations and to create a $9 billion (Rs 59,766 crore) enterprise that would propel India’s growth. Birla, 49, sees green shoots in the face of headwinds. In a select media briefing, he flagged off investors’ concerns that the merger is done to fund Idea Cellular for battle with Mukesh Ambani’s Reliance Jio. Here are the edited excerpts.
Last year you spoke about simplifying Aditya Birla Nuvo structure but with this deal, it looks more complex now.
We spun off carbon black, we spun off ABFRL. Here, we are creating financial services as a separate listed business. You can’t take out every business and spin it out. Right? It’s not meant to be holding company as there are several of operating businesses. Also, you have to see what the company will look like… a much larger company with larger market capitalisation.
Why did you decide to go for this kind of complex transaction rather than just hiving off your financial services business? Are there any more business to be simplified?
This gives the financial services business a strong parentage in the new Grasim, which is important to fuel its growth. Cement, VSF, chemicals financial services, you know some of these are the fastest growing services. Cement is an independent listed company in any case. There is no more that we can think of now. We have already done this with carbon black, ABFRL and now with financial services.
Idea is also getting a strong parentage in Grasim? Analysts feel that merger is done to fund Idea ahead of spectrum sale and reliance Jio’s launch. Your comments.
It’s not about Idea. It'll have 25 per cent of holding in Idea. It’s not about fueling Idea’s growth as Idea itself has invested about Rs 12,000 -16,000 crore on its own in the last 3-4 year. Idea is an independent listed company and it raised capital through issuance of QIP, strategic investor. There is nothing to do with Idea and I don’t see why it should concern Idea shareholders at all. Nothing changes, for Idea, ABFRL, or Ultratech. It’s just a coincidence that that the deal is announced closer to reliance Jio launch.
The financial services business is going to have funds requirement. Where will it come from?
We have got strong business that throwing up cash, VSF, chemicals is cash-generating business. Both companies have presence in similar spaces, so both have presence in caustic soda, both comes under the broad umbrella of textile, both have holding in operating companies. All of these things, as package, make up in this construct.
What was the trigger for the merger?
Financial services business has come of age and has reached critical mass. Grasim has got faster growing companies. Both the companies are operating in similar spaces. So, it’s the most natural thing to do. We spun off carbon black and fashion retail. A lot of that work has been done already and on the back of it, this can be done. I think it's an interesting mix of businesses- some manufacturing, some services, some with stable cash flows and some fast-growing. Basically, it’s a play on India growth story.
Grasim and Aditya Birla Nuvo shares tanked about a billion in the last few days and minority shareholders are concerned about the merger.
The Grasim stock had taken a beating because the structure of the deal that got reported was baseless. The deal is done to fund Idea is not correct and it's like jumping the gun. The transaction was just announced 3 hours ago. What was put out in the press was speculative. What minority shareholders reacted to be based upon speculation. It’s a complex transaction that takes time to understand. Let them get the information, understand and take a call. What was reported was not the right structure of the deal.
You just talked about India growth story. How are you contributing?
We have just come out of a huge capex cycle. We have just spent Rs 20,000 crore in buying Jaypee cement assets that equivalent capex of the same size. We have just came out of capex of Rs 30,000 crore in Hindalco. Several of our businesses have come out of huge capex cycle and it’s now time to see returns on your capex.
Do you still see headwinds or any green shoots are visible?
I think that the ease of doing business index has really sort of improved significantly in last couple of years. GST is another shot in the arm. So, there are no headwinds. We see the demand of commodities aluminum, and cement is picking up. One feels very optimistic now. The government is doing all the right thing. Passing of GST is a big event for India.
Investor community feels that Grasim shareholders were imposed by the merger?
The management has to run the company. The shareholders don’t run the company. Thy have to be convinced that this has to be done and its impact and it’s just announced and the shareholders need to understand.
Investors also feel that merger was done to improve promoter’s stake in Grasim?
But we are reducing our stake in Nuvo so I don’t think that it’s a driving factor behind the merger.
Your views on RBI’s on-tap banking licenses?
It’s not applicable for large business houses and we appreciate that and our focus is now on NBFC.
When can we see UltraTech achieving 100 MTPA of cement capacity and de-merger of Century Textiles and Kesoram cement assets to be merged with UltraTech cements?
That has nothing to do with Aditya Birla Group at all. I am not the chairman. I don’t chair their meetings. I am only chairing the AGMs since the last 3-4 times on behalf of my grandfather as he is 95 and he is keeping well. 100 MTPA is not focus for us at all.
