Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
ABN
HINDALCO
Focus
Cement
Telecom
Aluminium
Location
India
India
India
Growth %
209
17500
300
Type
Growth
Top 3
% Stake
75 (present date)
27
~100
Competitive Advantage
Promises
continuous
growth
Promises
return and
growth
407,882
4,763
29,265
Revenue Stake
305,911
1952
29,259
180.75
20
19.36
5.52
ROA
(%)
(public 18.62
financial statements)
ROE (%)
INDUSTRY
RECOMMENDED
2.37
2. Describe the methods the Birla Group could use to unlock possible conglomerate
discount?
It could sell subsidiaries (like BPO-gives negative profit after initial profit, and software)
that have little contribution to the conglomerates output thus bringing down the value of
conglomerate in process.
It could spin-off its biggest loss making subsidiary BSLI to reduce the discount value.
Since it is creating the largest losses, this would be reflected in its share prices (earnings get
reflected in the share price), which would affect the entire conglomerates price. Therefore
a spin-off would help reduce conglomerate discount.
It could acquire companies that help reduce the discount by raising the combined value of
the firm, like say acquiring more stake in Idea Cellular or acquiring companies like L&T.
Advantages
Disadvantages
It saves money by operating in more than one business Being too much diversified can be a trouble for the
under the parent company.
parent company i.e. Birla Group as it was an
enormous task for Kumar Manglam Birla to focus on
The resources such as Land, R&D facilities,
several business at the same time.
Distribution centers could be shared between the
companies which would reduce the overall cost as in the K M Birla needed to have knowledge about every
case of Grasim Industries.
business as each was different from another for
effective decision making.
Helps to reduce the risks by diversifying in several
companies which means even if one of the company for It was a challenging task for K M Birla to manage the
e.g. Copper in Grasim industry is in loss it could be
subsidiaries and the companies along with other top
compensated by the other company e.g. Aluminium.
executives.
Birla Group seized the growth opportunity in foreign K M Birla thus admitted that he could not have
market by diversifying in several industries like Indocomplete domain knowledge of everything,
Gulf in over 13 countries.
understanding the key issues involved was critical
hence the focus has been placing a larger bets on
4. Does diversification create value for the Birla group in India? How different is
diversification likely to be valued globally?
Diversification created a major value for the Birla Conglomerate in India as it acquired L&T
and renamed it as Ultra Tech, becoming the second largest cement giant in India and fourth in
the world. With the annual cement consumption rising world and India playing an important
role this acquisition has played in their favor.
Acquisition of viscose staple fiber industries has helped them again as they faced a monopoly
in the Indian market, making it the second largest revenue contributor of Grasim. This VSF
can further be used for textile/garment industries as well, thus making room for vertical
integration.
By buying a stake in the telecom industries ABN has ensured its forever growing revenues,
profits and market penetration
Internationally, an aluminium manufacturing unit acquisition in Canada has benefited them as
well ensuring them a spot in the top three aluminium industries around the globe following
their top 3 rule. Not to mention the fact that with L&T acquisition they became worlds 4th
biggest cement brand.
Indian Context
Grasim, one of the three main companies of Birla Group was started as a textile
manufacturing company and later it diversified into cement, chemical and Viscose Staple
Fiber.
In 1958, Rayon which had cotton and jute fiber was added in the Grasim production list
which attracted large number of customers as the rayon fiber could be engineered in variety
of ways according to the demands of the customers.
Birla textile & Grasim could share resources like - plant, R&D facilities, distribution
centers, etc. thereby saved cost.
Acquisitions and mergers, with Indal, Birla Copper and the Nifty and Mt. Gordon copper
mines in Australia, were done which added more value to the Birla Group.
This strengthened the position of Hindalco in Aluminium and Copper industry thus
reducing the risk by diversifing.
The diversification strategy of Birla group was not only vertical or horizontal but it also
did a forward integration by forming Indo Gulf for the production of fertilizer, in 1988.
As insurance market in Indian had low entry barriers, the cost of entry was less Birla Group
formed joint venture with Sun Life Financial Inc., one of the leading international financial
services organizations from Canada, and formed Birla Sun Life Insurance Company
Limited (BSLI).
Global Level
Birla Group stepped into the international market by forming Indo Thai Synthetics, a
supplier of raw material to the worlds leading fabric manufactures in Thailand.
70% of its product is exported to more than 30 countries including USA, Canada, Brazil,
Argentina, Chile, Turkey, Greece, Belgium, France, Israel, Italy, Spain, Portugal,
Germany, South Korea, Bangladesh, Hongkong and Taiwan.
In 1978, Carbon Black which is used a pigment and reinforcing phase in automobile tires
was introduced by Birla Group in Thailand which helped Birla Group to diversify in other
business.
Birla Group enjoyed several benefits in the form of cheap land and resources, incentives
on tax and acquisition of Public Assets and with liberalization taking placing post 1991 era
gave many more advantages for Birla Group to trade internationally.
In Thailand, for instance, the Birlas got eight years of tax holidays, an eight year holiday
for business tax (sales tax), eight year holiday for all remittances of royalties and technical
know-how fees which normally attract a 20% tax. The Thai government was not to promote
any industry for carbon black in the next five years in which the Birlas were to invest and
an assurance that import duties on carbon black would be enhanced from 10% to 30%
before the Birlas start the production of carbon black.
Thus, this diversification help Birla Group to reduce its risk by creating a strong portfolio and
adding value to their business.
5. Are the groups recent organizational changes appropriate?
Introduction of retirement policy:
Earlier employees used to stay in the organization till they pass away.
When Mr. K.M. Birla introduced a retirement policy in 1995, on the basis of which
around 350 senior personal had to leave.
Pros: New talent was recruited from B-schools and they gave new ideas
Con: There was a disparity in salary between new hires and old timers
Focused on personal issues by bringing professional into the organization who are
highly committed ,independent and dont mind voicing their opinion
He wants to bring people much brighter than him and not just people who have more
experience