?Cash generation and promoter funding will help us pare debt?

Aditya Birla Nuvo Ltd (ABNL), a part of the $29-billion conglomerate Aditya Birla Group and a somewhat a conglomerate in itself with interests across half a dozen businesses, has been through a rough patch. It?s, however, bounced back with a net profit of Rs 155 crore in the year to March 2010, against a net loss of Rs 436 crore in 2009. The company now plans to channel its surplus generated from businesses like carbon black, insulators and fertilisers into IT, telecom, financial services and garments. Managing director Rakesh Jain tells Smita Joshi Saha that ABNL will soon unlock value for shareholders and reduce the company?s debt. It has been posting profits in past few quarters after making quarterly losses before that.

Which areas have driven the turnaround?

Well, the turnaround has actually happened in garments, ITeS, the carbon business and insurance, which went through a rough patch after the global meltdown. Our insurance business has matured over a period and the share of renewal premiums has started rising. And over the three to four quarters, the losses have been coming down. This helped us report a profit in the March 2010 quarter and the entire year has been a good year for us. Also, the conglomerate model has helped us to use our cash effectively.

What is the game plan for the financial services business?

We continue to grow this, since the insurance business, which brings in about a third of ABNL?s revenues, is a key focus area of Aditya Birla Financial Services. We continue to grow through our direct sales force, new branches, as well as our channel partners. Moreover, we are also focusing on group insurance.

ABNL was looking at spinning off the financial services business into a new subsidiary? What is happening on that front?

Well, our financial services has seven different pillars, from insurance to NBFC to wealth management and broking. So we report to several regulators. While we have received the RBI approval, we still require permissions from Sebi and Irda. There are some other approvals which are being processed right now and hopefully with Irda coming up with new guidelines, things should move fast. Operationally, though we are already working as one organisation. We wish we had some clarity on timelines because we have been waiting for some time now.

ABNL?s balance sheet is somewhat leveraged. How do you plan to reduce your debt burden?

On a standalone basis, total debt, excluding working capital borrowings, as at the end of March 2010 was Rs 2,800 crore, lower by Rs 850 crore over the previous year. Our net debt-to-Ebitda is at 4.1 times while the net debt-to-equity is at 0.7 times, and given our strategic investments of around Rs 5,500 crore, these ratios are reasonable.

The debt has been high due to the growth in the financial services segment but that space should not require more than Rs 200 crore because insurance is almost mature. At the same time, garments, BPO and manufacturing businesses are now profitable. So we expect there will be a significant cash generation of around Rs 600-700 crore, which will help us to reduce the debt. Also, we?re expecting Rs 425 crore by way of promoters? contribution by December 2010.

Nuvo suffers from a holding company discount in the market. How do you plan to create value for the shareholders? Is there any plan to spin off the garment business and create a separate subsidiary?

Our objective is to add value from a business perspective, though I do agree that there could be some discount from the market point of view because we are a holding company. We are unlocking value for our shareholders by spinning off the financial services business. Its a step-by-step process. If you remember we started incubating the telecom business four-to-five years back and then we spun it off. Now, it?s the turn of financial services, which we have been incubating for the last seven-to-eight years. We would look at the option of listing the financial services business. So we are looking at ways to monetise businesses and create more value for shareholders. I don?t think we will look at garments now, its still too premature and we need to work on that. Next in line could be be IT and ITeS, where we have done several acquisitions and have achieved a critical mass.

Where do you see yourself three years down the line in the IT and garments business?

I would say that IT and ITeS together could be a billion dollar-plus business in three years if we consider both organic and inorganic growth. Revenues from garments are about Rs 1,200 crore or so and in three years, we believe,this could more than double.

How much do you expect to spend on capital expenditure this year?

We will spend about Rs 200 crore for financial services, about Rs 70-80 crore to grow the garments business and roughly Rs 40-50 crore on insulators. We are also planning to invest about Rs 150 to expand the caustic soda business in the next couple of years.