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Arijit De
Mumbai, July 15: The Aditya Birla group, currently in the process of reviewing all its business portfolios, has identified information technology as a new focus area as part of its decision to move into knowledge-based industries.
The group may also exit from some of its existing businesses that do not add much to the value-chain following completion of the portfolio review exercise.
Senior officials of the group confirmed that a feasibility study for a foray into infotech, which was on for the last few months, was now over and a comprehensive business plan is currently being put in place. Officials added that the group plans to become a major player in the sector but declined to divulge details.
It is learnt that the group will induct an "outsider" towards the end of July who will be the operational head of the Aditya Birla group's entry into infotech.
Debu Bhattacharya, the managing director of Birla Management Centre, the group's central think-tank, is the director-in-charge of the group's infotechbusiness.
"We presently have a very small presence in infotech through a division of flagship Grasim Industries. The division will be the vehicle of growth for the group's foray into the infotech sector," group officials added.
The division, it is believed, could be hived off into a separate company but no details on this was forthcoming from the group at this stage.
In the previous fiscal, the division - Birla Consultancy & Software Services - has registered more than 100 per cent growth in export turnover and secured several offshore projects. It has also established relationships with all the Big Five consultancy majors.
Group chairman Kumar Mangalam Birla had, in an interview to The Financial Express earlier, said that the group was looking at the infotech sector. A process, he had said then, had been initiated to identify new growth areas.
Birla on Thursday said that the group, with the help of management consultants Boston Consulting Group, was currently doing a review of all itsbusiness portfolios.
When the process is through in another two months, Birla said, the group could get into some new knowledge-driven industries, while on the other hand, there was also a possibility that the group may exit from one or two of its existing businesses.
"Though traditionally we have been a commodities player, foray into knowledge-based industries may result in substantial gains in terms of shareholder return as investment required will not be significant," he added.
The Rs 15,000-crore diversified group is a major player in commodities with focus on cement, base metals like aluminium and copper, textile intermediaries, carbon black, sponge iron and textiles. In recent years, it has also got into the infrastructure sector with substantial investments committed in oil refining and LNG, power generation and telecommunications.
It has also decided to expand its presence in the financial services sector and has tied up with Sun Life Assurance to offer the entire range of financial servicesproducts.
Birla, however, said that there were no plans to get out of oil refining or telecommunications at this stage.
The group, which had invested around Rs 341 crore in the sea water magnesia division of Indian Rayon, will exit from the business. Birla said: "It may be difficult to identify a buyer as it is the only plant of its kind in India. But we have also received inquiries from some Indian companies, as well as MNCs, and hope to identify a buyer within a couple of months."
Taking over technocrat run companies will prove profitable
The Aditya Birla group's decision to enter the IT business is consistent with its plans to foray into only those businesses that offer a return on investment of over 20 per cent. The group has the finances and may find it convenient to take over existing companies rather than get into a greenfield venture.
There are many excellent companies in the sector promoted by technocrats who have little experience in running a commercial venture. Many such companiesare under severe financial strain and need cash-rich partners to bail them out. Such an arrangement is generally a win-win situation for both sides.
The Birlas, who have little expertise in the field, will benefit from the experience of the technocrat promoters. The group already seems to be on the lookout for such tie-ups, and going by its restructuring plans, the new venture would take the form of a holding company. Such a structure is in place at Birla Global Finance, which holds many subsidiaries offering various financial services. The advantage of such a structure would be that while the various subsidiaries could be floated with different technology partners, strategic investors could be invited in the holding company to raise finances.
--Sarad Saraf
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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