Billionaire Birla Says PM Modi Needs Time to Spark Investment

PM Modi needs to spur companies to boost spending to revive growth in Asias third-largest economy, which has slowed for five straight quarters. Weak consumer sentiment is keeping factories working below capacity while bank lending is at a 25-year low as bad debts weigh on lenders.

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Billionaire Birla Says PM Modi Needs Time to Spark Investment

Much is at stake for Kumar Mangalam Birla's sprawling conglomerate

Kumar Mangalam Birla, who controls the $41 billion Aditya Birla Group, says steps by Prime Minister Narendra Modi to revive growth in the economy will take more time as companies rein in investment for at least one more year.

“As the health of banks begins to improve, their ability to lend will increase and the corporates can consequently start investing maybe over the next one or two years,” he said in an interview at the group’s corporate headquarters in Mumbai. Large conglomerates such as Birla and Tata will not suffer, as they have their own access to capital, he said.

PM Modi needs to spur companies to boost spending to revive growth in Asia’s third-largest economy, which has  slowed for five straight quarters. Weak consumer sentiment is keeping factories working below capacity while bank lending is at a 25-year low as bad debts weigh on lenders.

“That corporate investment is not happening is not surprising,” said Mr Birla, 50. “It’s not to do with this government. It has focused on all the right issues.”

Earlier this month, PM Modi said his government was fully committed to reversing the slump in growth and was “ready to take decisions.” Much is at stake for Mr Birla’s sprawling conglomerate, which includes telecom, financial services, cement, aluminum and textiles assets.

In the country’s rough-and-tumble telecom sector, Mr Birla is merging his Idea Cellular Ltd. with Vodafone Group Plc’s local unit, leapfrogging billionaire Sunil Bharti Mittal’s Bharti Airtel Ltd. to become India’s largest mobile phone company. Mr Birla’s Hindalco Industries Ltd. also owns Atlanta-based Novelis Inc., world’s largest producer of rolled aluminum products.

Here are edited excerpts from the Birla interview:

What’s your outlook for India’s economy?

It’s important to see holistically the circumstances in which this government came in. When this government came in, the economy was in a bad shape. There had been issues in coal block allocations. Environment clearances were inordinately delayed. As a result, most companies had got a lot of debt on their balance sheets.

Banks have now become much tougher, and rightly so, about the quality on their lending books. Just the headroom for being able to take more debt for most companies in India -- save a few large groups like the Tatas or us -- has strongly shrunk.

Once the consumption story comes back, capacity utilization will go up, cash flows for companies will improve, their ability to repay debt and invest in new capacities gets better -- that virtuous circle is yet to be kicked off.

On Novelis and acquisition of a U.S. metals company?

If we get access to technology, if we get a customer franchise that furthers our strategic architecture, then it’s a good idea. If a good acquisition opportunity comes along, then obviously it takes you up the learning curve much faster.

Are you happy with your group’s risk exposure?

The portfolio has been structured and carefully planned to have a fair mix of asset-heavy and asset-light industries and a commodity-versus-service play. So there’s a fairly large exposure to financial services, telecom, retail alongside real-economy businesses such as cement, VSF fiber or aluminum.

There are a fair number of businesses whose fortunes are directly linked to the global economy, for instance aluminum, whereas cement is a local, regional play.

Will you consider buying more telecom assets?

I don’t think so. Vodafone and Idea have a very complementary set of assets. We don’t really have a business logic for buying assets post merger.

Does the March 2018 deadline to close the Vodafone merger hold?

That’s a fair assumption to make. It’s a big area of focus for us.

What’s your plan for the financial services unit?

Insurance, the asset management company, non-banking finance company and health insurance will be the biggest drivers of growth going forward. We have specific plans to increase market share in life insurance, but we are not looking to acquire an insurer.

What is interesting to you in the distressed assets space?

An asset reconstruction company is a great idea because we have never had so many distressed assets come to the market in a structured way. And there is a structured formal process to dispose of these assets. We are present in so many different sectors which gives us an advantage.

We are talking about turning around assets not just through financial restructuring, but also in terms of operations. We could have a distressed fund too and look for investors in that.

Why did the group shut down its e-commerce venture Abof.com?

We had to disband Abof because the whole industry structure changed since our foray into the business. Visibility on when we could turn profitable is practically zero. And you can’t have emotional attachment to a business. Timing an exit is as important as making a foray in a business.

What’s your management philosophy?

Me along with the business heads, every year will align on the strategic upper picture of the business. Where are we taking this business to, which parts of the financial service business do we want to invest in. Creating that alignment is a very important thing.

If you take each of my businesses, each of my senior business managers and put us in a room and ask us to write down which are the three most important priorities for the business today, my sense is that 99 percent of us will write down the same three things.

When you have alignment, it also means that decision making also becomes simpler. You know which way, which routes not to take, which very often takes a lot of time. It’s a very empowered concept. Very entrepreneurial. Once there’s alignment, then the business leader has a lot of latitude.

We don’t want people who are individual stars. We want star team players. Over the years we’ve come to the conclusion that it’s not good enough only to be a star, if I can’t be a star in a team and create a star team.

To contact the reporters on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net ;Siddharth Philip in Mumbai at sphilip3@bloomberg.net To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net Dave McCombs, Arijit Ghosh

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