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Transcript of Transforming for Superior Value Creation - … Call/100300_20040229.pdfTransforming for Superior...
Transforming for Superior Value CreationTransforming for Superior Value Creation
Presentation by
Mr. Kumar Mangalam BirlaChairman, The Aditya Birla Group
February 2004
2
Driven by values, anchored by over 70,000 employees
The Aditya Birla Group: A Snapshot
■ Amongst three largest business groups in India
■ Leadership position across key businesses➤ Cement: Largest in India; 7th largest globally
➤ Viscose Staple Fibre: Largest in India and globally
➤ Non-ferrous Metals: India’s largest; amongst lowest cost producers globally
➤ Garments: Market leader in India
➤ Carbon Black: 5th largest globally
➤ Financial Services: India’s 2nd largest private insurance company & 4th largest asset management company
➤ Other businesses: Leadership position in several businesses globally(VFY, Chemicals, Fertilisers, Insulators)
■ Revenues of $5.5bn and net earnings of over $700mn annually
■ Market capitalization of $5.4bn with over 700,000 shareholders
3
VSFCarbon BlackMetalsChemicalsAcrylic FibreCementFertilisersGarmentsInsulatorsIT / ITeSSpinningSponge IronTextileVFY
Operations Across Continents
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3
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5
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7
8
9
10
Taking India to the World
VSFVSFCarbon Black
Carbon BlackMetalsMetalsChemicalsChemicals
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1
1
2
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7
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10
6
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OthersOthers
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Our Value Creation Framework
Core StrengthsCore Strengths
Relentless Pursuit ofSuperior Shareholder Value
People
-ise
Institut
ionali
se
Custo
merise
Strateg
ise
Vision: To be a premium conglomerate with a clear focus at corporate level
5
Core Strengths: Nurtured Over Decades
Core StrengthsCore Strengths
Relentless pursuit ofsuperior shareholder value
Peop
le-is
e
Instit u
tiona
l-ise
Cust o
mer- is
e
Strat
egis e
1
Emphasis on Financial Prudence
12
Streamlined Systems and Processes
2
3
Corporate Governance3
4
Principles of Trusteeship4
5
Focus on Cost Leadership and Efficiency
5
6
Quality Consciousness6
Operational Excellence
77
6
People: Providing Us the Cutting Edge
■ Contemporising talent pool➤ Instituted ‘Talent Management’ processes➤ Lateral inductions from MNCs globally
■ Capability building through development ➤ Job Evaluation for role clarity and career management➤ Gyanodaya focusing on building leadership and competencies ➤ Senior Management as Role Models & Performance Coaches
■ Systems to benefit from employee feedback➤ Organisation Health Study➤ Ombudsman Panel
■ Building meritocracy➤ Performance linked rewards (LTIC)➤ Aditya Birla Awards to encourage team and individual excellence
7
People: Encouraging Results Showing Up
■ Amongst Top-20 employers in India ➤ “Best Employers in India” by Hewitt Associates & Business Today➤ “Great Places to Work in India” by Grow Talent & Business World
■ Overseas units amongst Best Employers in Asia, Thailand & Indonesia in 2002/03
Our People Vision: To be known as a people sensitive, achievement focused, development oriented organisation
8
Institutionalise: Adopting Best Practices Across Companies
■ Value Based Management➤ Aimed at aligning stakeholders’ interest
! EVA: Well understood measurement metric! Under implementation by Stern Stewart & Co.! EVA based capital allocation processes
➤ Focused six pronged approach
Explicit Commitment to Value
Empowering Businesses
Building OwnershipIntense Training
Value Based Management
Encouraging journey so far
11
Significant Process Reforms
EVA Based Capital Allocation Processes
2233
44
5566
9
■ Implemented World Class Manufacturing (WCM)➤ Manufacturing focused excellence tool➤ Integrates several contemporary initiatives
! TPM, TQM, BPR, Six Sigma, IQRS, Value Engg.
➤ Several accolades in recent years
! Several National Awards
Institutionalise: Adopting Best Practices Across Companies (Contd.)
Teams -Ins pir a t ion
&C
ompetition
Shareholder’s Valu eShareholder’s Valu eM
inds
et,C
ultu
r e&
Passi
on
Vision,Mission, Strategy & LeadershipVision,Mission, Strategy & Leadership2
WorkEnv ironment
(5S)
2 Work
Env ironment(5S)
6Quality First:
Six Sigma/SQM &Best Practices
6Quality First:
Six Sigma/SQM &Best Practices
5Customer
Driv en:Internal and
External
5Customer
Driv en:Internal and
External
4Equipment
Effectiv eness/TPM
4Equipment
Effectiv eness/TPM
3JIT / Supply Chain
Management
3JIT / Supply Chain
Management
1Waste
(MUDA)Elimination
1Waste
(MUDA)Elimination
8Information,
Systems/BPR, Technology and
Cash Flows
8Information,
Systems/BPR, Technology and
Cash Flows
7Liaison,
Team Forceand Skill
Dev elopment
7Liaison,
Team Forceand Skill
Dev elopment
Delivery & Speed
Quality & QuantityCost
Innovations &
Productivity & PrideIntellectual Capital
10
Emphasis on Superior Governance& Transparency
Group companies’ Annual Reports rated amongst
“Top-25 in Asia”
“Best in Asia” Award for Hindalco Annual Report
Hindalco wins “Best Practices Award for Managing External
Stakeholders”
Institutionalise: Adopting Best Practices Across Companies (Contd.)
20022002
20012001
20022002
11
Customerise: Building Strong Brands and Moving Closer
Widely recognised and trusted brands across segments
12
Strategise: Consistent Theme in a Dynamic Environment
Aimed at sustaining superior value creation across companies
Enhance Competitiveness in Traditional Businesses
Build Global Sized, focused
Businesses
Invest in Businesses of the Future
16
Strategise: Significant Progress in Recent Years
Indian Rayon’s acquisition of
Madura Garments
Indian Rayon’s acquisition of PSI
Data System
Indian Rayon’s acquisition of Transworks
1998 1999 2000 2001 2002 2003
Restructuring of Metal businesses
of the Group -Hindalco acquiring
Copper
Hindalco’sacquisition of Mt Gordon mine in
Australia
Hindalco’sacquisition of Nifty Mines in Australia
Hindalco’sAcquisition of
controlling stake in Indal
Grasim IndustriesAcquisition of
Dharani Cements
Consolidation of cement
businesses of Grasim and Indian
Rayon
Grasim Industries’Acquisition of Sri Digvijay Cement
Grasim Industries’Strategic Stake in
L&T
17
• Cement• VSF
• Manufacturing− VFY− Carbon Black− Insulator
• Brands: Garments• Knowledge &
Services
M.Cap: US$ 2,100 mn M.Cap:US$2,300 mn M.Cap:US$110 mnM.Cap:US$310 mn
• Metals • Fertilisers
Result: Focused Companies With Identified Growth Businesses
18
Result: Superior Shareholder Returns Across Companies
____________________Source: Bloomberg
Group Market Group Market CapitalisationCapitalisation vs. vs. SensexSensex(Indexed)(Indexed)
5 Years
3 Years
1 Year
OutperformanceSensexGroup Market Capitalisation
191232
161026
4878125
Annualised Returns (%)
0
50
100
150
200
250
300
350
400
450
500
Feb-99
Aug-99
Feb-00
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Sensex Group Market Capitalisation
19
Transformation of Grasim ...
■ Acquiring L&T Cement (CemCo)
■ Cement restructuring & acquisitions
■ Closure of unviable Mavoor operations
■ Sale of fabric units at Gwalior
■ Exit from non-core operations: Trading & Software
■ Manpower rationalisation by almost 33%
■ Financial restructuring
Emerging as a global sized cement player
■ Cement brownfield expansions
■ Augmentation of captive thermal power
■ New VSF capacity at Kharach
Cement
Others
Cement
Others
Cement
Competitiveness
Size & Scale
Future
20
… Has Helped Unlock Significant Shareholder Value
Improving fundamentals being appreciated by investors
____________________Source: Company Data
____________________Source: Bloomberg;* Since Cement Restructuring in September 1998
Rising ReturnsRising Returns
0
1000
2000
3000
4000
5000
6000
7000
FY99 FY00 FY01 FY02 FY03 FY04e5
7
9
11
13
15
17
19
Capital Employed ROCE RONW
(Rs . Crores) (%)Annualised Returns (%)
12
10
78
Sensex
36485 Years
36463 Year
1442221 Year
Outperformance Grasim
0
100
200
300
400
500
600
700
800
Sep-98
May-99
Jan-00
Sep-00
May-0
1
Jan-02
Sep-02
May-0
3
Jan-04
Grasim Sensex
Value appreciation of 572% since 1998*Value appreciation of 572% since 1998*
21
31
16
13
9
65
0
5
10
15
20
25
30
35
Grasim -L&T
ACC AmbujaGroup
IndiaCements
J K Group MadrasCements
(Mn TPA)
Grasim Going Forward – A Cement Major
" No 1 in 8 states with 42% of industry v olume
" No 2 in 4 states with 15% of Industry v olume
" No 3 in 6 states with 22% of industry v olume
States whereAlliance is No 1Alliance is No 2Alliance is No 3Alliance is Below No 3
____________________Source: CMA Data
Cemco
Leadership position in key consuming markets
22
Grasim Going Forward: A Strong Play on India Growth Story
■ Exciting cement outlook➤ High growth potential, fortified by thrust on infrastructure➤ Sector to grow 9-10%, backed by 6% annual GDP growth➤ Better pricing helped by improving demand-supply balance
■ Grasim well positioned ➤ Leading market share ➤ Strong brands and distribution network➤ Competitive cost structure, further strengthened by CemCo synergies
■ VSF powering Cement growth
■ Continuous management emphasis on improving returns and delivering superior value to shareholder
23
Transformation of Hindalco
Creation of a Regional metals major
■ Acquisition of Copper Mines
■ Brownfield expansions in Copper Smelter
■ Acquisition of Indal: Upstream and downstream strengths
■ Copper business acquisition
■ Enhanced stake in Utkal Alumina, a majority JV with the global leader - Alcan
■ Aluminium brownfield in 1998 and 2003
■ Efficiency enhancement and cost reduction efforts
Competitiveness
Size & Scale
Future
24
25
75
125
175
225
Jan-00
Apr-00
Jul-0
0Oct-
00Ja
n-01
Apr-01
Jul-0
1Oct-
01Ja
n-02
Apr-02
Jul-0
2Oct-
02Ja
n-03Apr
-03Ju
l-03
Oct-03
Jan-0
4
Sensex Hindalco
Value appreciation of 78% since metal business restructuring
Hindalco: Significant Value Enhancement Since Restructuring
____________________Source: Bloomberg
Annualised Returns (%)
12
10
78
Sensex
14265 Years
14253 Year
731511 Year
Outperformance Hindalco
25
Hindalco Going Forward: Leveraging Regional Growth Potential
■ Asia is the fastest growing Aluminium market in the World➤ Led by China, Asian growth to be double that of World average➤ Significant opportunities in both Metals and Alumina➤ India uniquely positioned given its quality bauxite ➤ Domestic long term outlook equally exciting
■ Copper consumption growth in Asia equally impressive➤ Asian demand-supply gap exceeds 2.5 mn tonnes per annum➤ India uniquely positioned as shortfall met through supplies from Australia
and South America
■ Hindalco well positioned to reap benefits➤ Globally competitive cost structure➤ Sustainable strategic advantages➤ Domestic dominance with growing exports presence➤ Strategic initiatives to grab emerging market opportunities
26
Indian Rayon: Emphasis on New Growth Avenues
■ Madura Garments: Leadership in high growth branded apparels
■ Insurance: 2nd largest life insurance player
■ IT and BPO entry
■ Insurlator business transferred to a JV with NGK of Japan
■ Carbon Black expansions: 1999 and 2003
■ Exit from Sea Water Magnesia
■ VFY: Moving up the value chain through quality and branding
Competitiveness
Size & Scale
Future
27
Value appreciation of 887% since cement restructuring
____________________Source: Company Data
____________________Source: Bloomberg* Since Cement Restructuring in September 1998
Indian Rayon: Delivering Strong Return to Shareholders
0
200
400
600
800
1000
1200
1400
1600
FY99 FY00 FY01 FY02 FY030
2
4
6
8
10
12
14
Net Worth ROACE RONW
(Rs. Crore s) (%)
Rising ReturnsRising Returns
0
200
400
600
800
1000
1200
Sep-98
Jan-9
9May
-99Sep-9
9Ja
n-00
May-00
Sep-00
Jan-0
1May
-01Sep
-01Ja
n-02
May-02
Sep-02
Jan-0
3May
-03Sep
-03Ja
n-04
IRIL Sensex
Stock Performance vs. SensexStock Performance vs. Sensex
Annualised Returns (%)
12
10
78
Sensex
24365 Years
23333 Year
561341 Year
Outperformance IRIL
28
30% 30%32% 32%
34%36% 36% 37% 37%
30%30%
24%
18% 20%
15%
22%
28%
35%
42%
FY97 FY98 FY99 FY00 FY01 FY02 FY03
Trousers Shirts
Arvind Mills16%
Raymonds14%
Zodiac5%
Color Plus3%
Madura Garments
28%
Others34%
Others27%
Max New York9%
HDFC Standard
13%Birla Sunlife
13%
ICICI-Pru38%
Market Size: Rs.1,400 CroresMarket Size: Rs.1,400 Crores
Indian Rayon: Created a Strong Platform For Future Growth
Garments: Market shareGarments: Market shareLife Insurance: Market Share FY03 (%)Life Insurance: Market Share FY03 (%)
Market Share: Premium Shirts & TrousersMarket Share: Premium Shirts & Trousers
Built market share even in new businesses
29
87% return since listing; Open offer was yet another value unlocking opportunity
Indo Gulf: Restructuring Helped Unlock Shareholder Value
■ Restructuring resulted in a focused fertiliser company
■ Amongst lowest cost urea producers
■ Sustainable strategic advantages➤ Locational strengths➤ Strong brand equity➤ Enviable financial strength
■ De-capping and possible decontrol provide excellent opportunity
➤ Best equipped to face the de-regulated market conditions
____________________Source: Bloomberg
Indo Gulf vs. Indo Gulf vs. SensexSensex(Indexed)(Indexed)
80
130
180
230
280
330
380
430
Mar-03
Apr-03
May-03Jun-03
Jul-03
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Jan-04
Indo Gulf Sensex
30
Widespread Recognition of Our Efforts So Far…
… But, the journey has just begun
Thank youThank you