The Telegraph
Since 1st March, 1999
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Birlas to step on the gas in consolidation

Mumbai, July 6: The acquisition of Larsen & Toubro’s (L&T) cement division and the buyout of a business process outsourcing (BPO) firm promises to speed up the consolidation juggernaut within the AV Birla group as it looks to fortify its other lines of business.

Both events came in quick succession last month, signifying that consolidation will be a recurrent theme under the leadership of the 36-year-old Kumar Mangalam Birla.

His recent address to shareholders also throws up reasons why Birla wants to attain the critical mass. These are market leadership, economies of scale, productivity gains and operational efficiencies. Measures taken over the past few years in this direction have already started yielding results, he said.

Analysts say Birla has begun by ramping up the scale of his operations and by consolidating the areas of core competence. He has also quit many ventures. These include the sea-water magnesia plan and oil refining, besides insulators, where it sold its equity to a global entity.

The acquisition of L&T cement has made Grasim the largest player, with a total capacity of 31 million tonnes. Similarly, last year’s move to consolidate the copper business of Indo-Gulf with Hindalco has enabled the latter emerge as a non-ferrous metals powerhouse.

Kumar Mangalam presided over Birla Copper’s acquisition of Nifty mines in Australia, turning the company, which gained leadership after de-bottlenecking its smelter facility, into an integrated copper producer.

Group sources also gloat over the revamp of Indian Rayon’s textile business under which the company pulled out of polyester viscose fabrics to focus on linens — a makeover that has brought about positive results.

“Birla’s efforts in consolidation have borne fruit with key group firms now possessing mammoth capacities and the stock markets now starting to recognise their true value,” an analyst with a foreign brokerage said. Kumar Mangalam is not happy with the way share price of his firms though, saying the prices on bourses have not kept pace with recent achievements.

Sources say the consolidation drive will now encompass information technology (IT) and ready-made garments.

Both garments and infotech are fledgling businesses, Indian Rayon last month acquired TransWorks, a BPO firm, for a total consideration of Rs 60 crore.

The buyout quelled speculation that the Birlas could quit infotech after losses suffered by PSI Data Systems, a group firm. Having gone through a bad patch, PSI is now taking a fresh look at operations by withdrawing from some activities, which include embedded and telecom software, capital market products and network management solutions. It is keen on offering solutions for banks, financial services and insurance.

In garments, the Birlas are facing the pressures of a challenging market that is driving down net sales and squeezing profit margins. There is a sense that an acquisition to widen the Madura Garments range could come even as there is speculation that Peter England may be going on the block. Sources close to the group, however, denied there are plans to shed this brand.

The sale of public sector undertakings is another opportunity that the Birlas are likely to use to enlarge their canvass. They could, for instance, set their sights on Nalco, National Fertilisers and Madras Fertilisers.

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