Billionaire Who Shunned India Does U-Turn on Modi Overhaul

By With assistance from Jeanette Rodrigues  

Less than two years after calling India a risky place to invest, billionaire Kumar Mangalam Birla has changed his mind. The reason: Prime Minister Narendra Modi.
“There’s a new sense of excitement,” Birla, 47, who heads India’s $40 billion Aditya Birla Group named after his father, said in an interview in Mumbai. “From not being there on our list of potential countries to invest in, to coming right back up on top again -- that is a big deal.”
Birla, who runs companies from the world’s largest rolled aluminum maker to India’s biggest cement producer, in a March 2013 interview to Bloomberg TV India said he preferred Brazil and Indonesia because frequent policy changes at home were scuttling investment plans. Modi, who swept to
power in May, is seeking to rekindle growth by easing restrictions and rebuilding infrastructure for his ‘Make in India’ drive.
The new government under Modi has pledged to press ahead with amending land, labor and foreign investment law to make it easier for companies to do business after taking steps last month to curb fuel subsidies.
The renewed focus on India means the country will be the first the group will consider for investments, Birla said in his fifth-floor Mumbai office. India accounts for about 50 percent of his group’s revenue and the share is likely to increase if he spends more on his businesses that include retail, telecommunications and mining.

Photographer: Dhiraj Singh/Bloomberg

Kumar Mangalam Birla, chairman of Aditya Birla Group, reacts during an interview in... Read More

Back in Focus

“In the next five years, when we make an investment decision as opposed to not looking at India, India will be a preferred destination,” said Birla, who is India’s seventh-richest person with a net worth of $7.1 billion, according to the Bloomberg Billionaires Index. “India, very rightfully, has come back into focus.”
The $1.9 trillion economy, Asia’s third biggest, may expand 6.3 percent in the year through March, the International Monetary Fund says, rebounding from last year’s 4.7 percent, which was near the slowest in a decade.
By 2016, a growth rate of 7.2 percent will surpass China’s 7.1 percent, according to Rajeev Malik, a Singapore-based senior economist at CLSA Asia-Pacific Markets.
Purchases of Indian shares by foreign funds this year reached almost $15 billion, the most among eight Asian markets tracked by Bloomberg. The inflows have helped fuel a 32 percent rally in the benchmark S&P BSE Sensex (SENSEX), making it the best performer among the world’s 30 biggest markets.

Photographer: Dhiraj Singh/Bloomberg

Kumar Mangalam Birla, chairman of Aditya Birla Group, gestures while speaking during an... Read More

Novelis Purchase

The Birla group operates in 36 countries including the U.S., Brazil, South Korea and China. It is currently working on finishing projects in India that include two aluminum smelters of 360,000 metric tons each, captive power plants and expanding cement capacity.
“I see India’s share staying at least 50 percent and maybe going up a little bit because the investments we have made in India are far more bulky,” Birla said in the Nov. 10 interview.
After its biggest ever acquisition in 2007 when it bought Atlanta-based aluminum sheet maker Novelis Inc. for an enterprise value of $5.8 billion, the group is keen on expanding in the U.S., he said.
“The U.S. has worked well for us,” Birla said, referring to businesses that produce lightweight metal sheets for vehicles and beverage cans. “In the U.S, unlike what has happened in the past in India, politics and economics are completely divorced. That’s what we in India should aspire for and that’s what this new government will look to do.”

Falling Short

Red tape could still derail Modi’s ‘Make in India’ plans to make the country a global manufacturing hub. Delays in permits are forcing Tata Steel Ltd., the nation’s No. 1 maker of the alloy and state-owned Steel Authority of India Ltd. to close some of their top mines.
“The wider perception is that the new government is much more reform-minded and business-minded,” said Shilan Shah, an economist at London-based Capital Economics Ltd. “Although some progress will be made, they may fall slightly short of expectations,” because Modi’s ruling party doesn’t yet control the upper house of parliament, he said.
India’s Supreme Court in September canceled more than 200 coal mine permits tainted by graft allegations, risking at least $47 billion of investments in power plants and smelters. Reclaiming lost blocks in new bidding may increase production costs and delay efforts to pare debt, Birla said.

U.S. Plans

The group will consider new investments in manufacturing in the U.S. as cheaper energy and ease of doing business there makes it an attractive manufacturing destination, Birla said, adding there are no concrete plans yet.
In the 2013 interview to Bloomberg TV India, he had said the Group was considering buying a fertilizer plant in the U.S. to benefit from falling energy prices.
Policy flip-flops during the previous administration drove Vodafone Group Plc to a long-drawn litigation over tax claims, while land disputes and delays have stalled a $12 billion steel mill planned by South Korea’s Posco almost a decade ago.
India slipped three levels in the 2013 World Economic Forum’s Global Competitiveness Index from a year earlier to 59, ranked behind Costa Rica and Kazakhstan. Brazil stood at 48, while Indonesia was 50.

Missing Target

A global slowdown coupled with delays in starting new projects and loss of coal mining blocks in India would mean that his group will miss its target of raising revenue by 63 percent to $65 billion by March 2016, said Birla. He forecasts the target would be achieved after “a few years,” without elaborating.
“I don’t see us getting close to that target,” said Birla. “We made large investments in India. A lot of the revenue that would flow through from those have been delayed because of project approvals, land acquisitions, clearances, all of those things. That’s the real impact that all of these bottlenecks have on a company and corporations.”
The group may look to buy some assets being sold by Holcim Ltd. and Lafarge SA after their merger, while also being open to acquiring factories abroad, he said. He is also looking at either purchasing an e-retailer or building one from scratch, he said.
The group is also interested in international coal assets, said Birla. It had made offers for Australian coal producers New Hope Corp., Aquila Resources Ltd.’s Washpool coking coal mine in 2011, people familiar with the matter have previously said.
“We had looked at deals then and we are constantly looking at deals in specific sectors, but nothing materialized because we didn’t think there was anything that met our requirements in terms of size,” said Birla.

Hindu Teachings

Birla said he gains “broader perspective” from his Hindu spiritual guru with whom he has weekly sittings and discusses the Bhagavad Gita, a Hindu scripture. “It has helped me become more detached at work.”
Calling a succession plan a “misallocation of time,” he said he would be glad to have his daughter, Ananyashree Birla, in the family business.
The 20-year-old Birla scion, eldest of his three children, set up Svatantra Microfin Pvt. last year that lends tiny sums to the poor in Maharashtra for setting up small businesses.
“I don’t know though what her plans are,” he said. “It is a new generation. It is a new time. I’ll be very happy if she comes to work with me but I am not setting my expectation on that.”