Birla #1: The Unknown Indian

Conglomerate
Group 1: Alexandra|Gagandeep|Grishma|
Evolution of the Birla Empire
Way
Group enters Acquired Madura Purchased 20% forward
into Copper Garments of equity of L&T Indian Rayon re-
Birla Group of Hindalco was Consolidation Launched Green Corporate christened as
companies incorporated of cement Power Project in Restructuring of Aditya Birla Nuvo
founded business into 1 Ktaka Hindalco & Indo
big unit Gulf

1857 1947 1958 1995 1998 1999 2000 2001 2002

2003 2005 2006 2007

Grasim was Kumar Mangalam

JV with Sun Birla Acquired
incorporated takes charge of the Acquired
Birla empire Life of Canada Technologies copper mines in Minacs
incorporated Australia Worldwide
 Organisational
Problem Statement
Structure

01 In which industries should

the Birla Group focus?
Identify by sector,
geography and
growth/income.

Subsidiari Associat Growth Value

es e Business Business
es es
Subsidiari Associat
JVs es e Rayon

02
Carbon
Science & Garment Describe the methods the
Cement JVs Black
Technolog s
Trading &
y
Insulator Birla Group could use to
Investmen Telecom s
t Aluminiu BPO Fertilizer
unlock possible
Idea
m Financial s Conglomerate discount.
Copper Services Textiles
cellular
Minerals IT
Pulp &
Finance Services
Plantation
Post Reform Principles (since
1996):
Principle 1 Principle 2 Principle 3 Principle 4

Rule of Grow Increase Consolidate

Three businesses in vertical similar
Be among the sectors where integration to business units
top 3 players the group has reduce cost into larger
in the world or Dominant structure firms
at least the presence and Increase Economies of
region strong production scale
performance efficiencies

Focussed Strategy: Formation

Larger bets on fewer businesses in groups dominant of
position sectors AB
Nuvo
Post Reform Principles (since
1996):
GRASIM INDUSTRIES HINDALCO INDUSTRIES
Increase in prices post 2008
Low demand in US and
CEME Western Europe
NT COPP
Increased demand in India,
ER China and Eastern Europe
Post 2007 Increased vertical
integration
VSF
Acquisition of Novelis US$6
bn
ALUM
INIU
M
OTHE
RS
Post Reform Principles (since
1996):
Aditya Birla Nuvo
Strategy:
Deploying surplus cash from Value businesses to grow the high growth businesses

Indian Rayons business grew through acquisitions

and joint ventures acquired Madura Garments in
2000
Joint venture of Birla Sun Life Insurance with Sun
Life entry into financial services
Acquisition of PSI Data Systems in 2001 entry
into IT services
Joint venture with NGK in 2003 expansion into
Insulators
Acquisition of TransWorks Information Services
entry into BPO
Analysis-BCG matrix

Select Remainder
HIGH
a few Divested

Invest
Busines
s
growth Liquidate
rate

LOW

HIGH LOW

Relative market
share
 Businesses to focus on based on Sector,
01 Geography
and Growth / Income
Aditya Birla HINDALCO Grasim
Nuvo
Telecom
Telecom Industries
Cement
Cement
Low Strong
Strong market
market position
position
Low market
market saturation
saturation Strong
Strong market
market position
position
(26%) No.
No. 11 Rolled-
Rolled- Aluminum
Aluminum (No.
(26%) (No. 2 domestic and
2 domestic and No.
No.
High
High growth
growth rate
rate for
for PBT
PBT producer
producer 9 globally)
9 globally)
(180%)
(180%) High
High market
market share
share (20%)
(20%)
Rayon
Rayon Sustainable
Sustainable competitive
competitive
High
High market
market share
share (30%)
(30%) advantage: In-house
advantage: In-house VSF
VSF
High
High international
international potential
potential power
power generation
generation and
and Global
Global market
market share
share 23%
23%
Account
Account for for 50%
50% ofof Indias
Indias ownership
ownership of of mines
mines (cost
(cost Monopoly in India
Monopoly in India
exports
exports advantage)
advantage) Cost
Cost efficiency
efficiency advantage
advantage
Production
Production in in Gujarat
Gujarat for
for
High Owns
Owns paper-pulp
paper-pulp mill
mill in
in
cost
cost efficiency
efficiency
Garments High growth
growth rate
rate ofof PBT
PBT
Garments especially Aluminum
especially Aluminum
Canada
Canada self
self sourcing
sourcing forfor
High
High growth
growth rate
rate for
for PBT
PBT cost
cost advantage
advantage
(31%)
(31%)
(404%)
(404%) Most
Strong Most vertically
vertically integrated
integrated
Strong domestic
domestic market
market producer
position Carbon
Carbon Black
Black producer
position
Domestic
Domestic market market share
share
35%
35%
44thth largest
largest producer
producer in in the
the
world
world
Lowest
Lowest cost cost producer
producer
Diversified
Diversified location
location for
for
production
production -- Thailand,
Thailand,
Loss making businesses

BPO
BPO
Negative
Negative growth
growth rate
rate
PBT
PBT (69.4%)
(69.4%)
IT
IT Services
Services
Low
Low growth
growth rate
rate &&
competition
competition in
in current
current
geographical
geographical setting
setting
Fertilizers
Fertilizers
Small
Small market
market share
share
(4.8%)
(4.8%) and
and negative
negative
growth
growth rate
rate PBT
PBT
(16.35%)
(16.35%)
Strategic Suggestion Insurance
Insurance
Financial Negative
Negative growth
growth rate
rate PBT
PBT
Financial Services
Services
(41.33%)
(41.33%)
Operate
Operate independently
independently from
from the
the loss
loss
making
making Insurance
Insurance division
division
 Methods to unlock possible
02 Conglomerate discount

Some businesses are not profitable

The following Complexity in businesses
businesses are not
profitable: 1. Large number of Finding cross
1. BPO- Negative businesses holdings
growth rate PBT 2. Investments in a
(69.4%) 1. Large number of
large number of subsidiaries have
2. Fertilizers- geographies holdings in other
Negative growth subsidiaries
rate PBT (16.35%)
2. Calculation show
C/O ratio greater
than 1 of Ultratech &
 Methods to unlock possible
Conglomerate discount
Ultratech Idea

1 O ( % ownership) 15.40 1 O ( % ownership) 17.1

2 Direct ownership % in Idea 0
2 Direct ownership % in Ultratech 0
Indirect ownership % in Idea
Indirect ownership % in Ultratech 3 % ownership in AB Nuvo 53.76
3 % ownership in Grasim 25.53 4 AB Nuvo's % ownership in Idea 25.27
4 Grasims % ownership in Ultratech 60.31 5 % ownership n Grasim 25.53
6 Grasim's % ownership in Idea 5.16
(Other companies have small share, we ignore them)
7 % ownership in Hindalco 32.06
5 Indirect % ownership in Ultratech (3)x(4) 15.40 8 Hindalco's % ownership in Idea 6.89
6 Total voting stake (2)+(5) 15.40 9 Indirect % ownership in Idea 17.1
10 Total voting stake (2)+(9) 17.1
7 C (Control stake (2)+Min[(3), (4)]) 25.53
11 C (Control) 37.32
8 C-O 10.13
12 C-O 20.2
9 C/O 1.66 13 C/O 2.18

rol by ownership ratio of more than 1 signifies greater divergence between C &O and hence greater chance
oitation of minority shareholders. Hence conglomerate discount.
THANK YOU!