Creating Shareholder Value Through Market Dominance Presentation by Mr. Sumant Sinha President Corporate Finance, The Aditya Birla Group Kotak Securities Investor Conference, New Delhi September 2002
The Aditya Birla Group: An Introduction Amongst largest industrial house in India Aggregate revenues of over US$ 4.8 billion and net earnings of US$ 500 million Anchored by over 72,000 employees and 700,000 shareholders Aggregate market capitalisation of US$ 3.0 billion At the core of core sectors of the economy Dominating presence in the core sectors for decades Aluminium Cement Copper VSF VFY Insulators Carbon Black And successful entry into new sectors in recent years Garments Financial Services Telecom Insurance 2
The Aditya Birla Group Companies M.Cap: US$ 600 Mn M.Cap: US$ 900 Mn M.Cap: US$ 110 Mn M.Cap: US$ 110 Mn M.Cap: US$ 175 Mn M.Cap: US$ 16 Mn Cement Aluminium Copper Garments Telecom VSF Fertilisers VFY Textile Carbon Black Sponge Iron Insulator Knowledge & Services 3
The Group Mission To relentlessly pursue creation of shareholder value Operational Efficiency Improve Operational Efficiency by Benchmarking with Best Standards Market Dominance Build Growth Platform to Achieve Industry Leadership Enhanced Shareholder Value 4
Focus on Efficiency, the Only Value Creation Opportunity in the Pre-liberalisation Environment Commodity Nature of Core Businesses Controlled Environment License Raj Efficiency Focus To Enhance Shareholder Value Cost Leadership Across Businesses 5
Amongst Lowest Cost Aluminium Producers in the World (Operating Cost of Metal US$/ton) VAW Alcoa Kaiser Norsk Hydro Global Average Rio Tinto Alcan Pechiney 1,303 1,272 1,250 1,210 1,182 1,168 1,153 1,148 Nalco 1,000 Hindalco 869 0 200 400 600 800 1,000 1,200 1,400 Source: AME 2002 & Company Data 6
Globally Benchmarked Efficiencies in Copper Metal Recovery Energy Consumption 99 98.5 98 97.5 97 96.5 96 (%) 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 (MJ/T) 7 Huelva Birla Copper Harjavalta Saganoseki Toyo Pasar Onsan Hurley SAN Norddeutsch Birla Copper Onsan Saganoseki Pasar Toyo Norddeutsch Harjavalta Huelva Hurley SAN Source: BROOK HUNT Source: BROOK HUNT
Cement: Sustained Efficiency Improvement Power costs (1) Fuel costs (1) Freight costs (1) (Kwh/MT) (Kcal/kg) (Distance Travelled (In Kms) 115 110 105 100 95 90 85 101 110 104 100 95 90 90 91 820 800 780 760 740 720 800 760 755 751 735 728 720 715 580 560 540 520 500 480 460 440 420 570 560 555 551 546 490 484 490 80 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 700 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 400 (1) Power, Fuel and Freight costs account for 63% of the cost of production Source: Company Data 8
Led to Competitive Cost Structure and Strong Performance compared to Industry Peers Improving Margins OPM: Peer Group Comparison Net Profit Growth 5 Year CAGR 25 20 15 (%) 40 35 30 25 20 (%) 25% 20% 15% 10% 5% 76% 18% 10% 10 5 0 FY97 FY98 FY99 FY00 FY01 FY02 15 10 5 0 Ambuja Grasim ACC L&T Asia Pacific Avg Global Avg 0% -5% -10% -15% ACC Grasim Ambuja -10% -5% L&T India Cement Madras Cement -5% Source: Company & Bloomberg Data 9
Need for Market Dominance Gaining Momentum Commodity Nature of Core Businesses Changing Business Landscape Market Dominance Intensifying Global Competition Industry Consolidation across sectors/regions Achieving market dominance will thus help in building growth platform to deliver superior value for shareholders going forward 10
Several Proactive Measures Taken in Recent Years to Achieve Market Dominance in Key Businesses
Cement: Market Dominance Through Restructuring 25% 20% 15% 10% 5% 0% Consolidation of Cement activities under Grasim 7.90% Market Share 8.6% Capacity addition to strengthen regional presence 10.0% Strategic Investment in L&T 10.9% 10.3% FY98 FY99 FY00 FY01 FY02 Strategy Started-off industry consolidation through amalgamation of Group capacities under Grasim in FY99 Acquisition of capacities in the South and at coastal location of the West Green field expansion in the profitable Southern and Northern regional Markets Marketing alliances and strategic investments Marketing alliance with CCI Strategic investment in L&T, which has a market share of 11.3% Industry dominance through focus on key growth markets Emerging stronger in the consolidating industry environment 12
Aluminium: Leadership Through Acquisitions 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Impressive Increase in Market Share Brown Field Expansion 26% 32% Acquisition of majority stake in Indal 37% 34% 42% 43% FY97 FY98 FY99 FY00 FY01 FY02 Copper business acquisition to create a Non- Ferrous Powerhouse Malco 5% Balco 15% Market Share FY02 Import 17% Nalco 20% Hindalco(1) 43% Undisputed Leadership in Primary Metal.. 13
Aluminium: Leadership Through Acquisitions (Contd.) Market Share: Rolled Products Market Share: Foils Market Share: Extrusions 80% 70% 30% 70% 60% 50% 40% 30% 20% 10% 14% 23% 28% 31% 65% 68% 60% 50% 40% 30% 20% 10% 6% 26% 55% 58% 25% 20% 15% 10% 5% 14% 14% 13% 16% 24% 26% 0% FY 97 FY98 FY99 FY00 FY01 FY02 FY98 FY99 FY00 FY01 0% 0% FY02 FY 97 FY98 FY99 FY00 FY01 Enviable Market Position in Value-added added Products As Well 0% FY02 14
Copper: Leapfrogged Competition to Achieve Dominance in 3 Years Impressive Rise in Market Share Market Share FY02 45% 40% 37% 41% 41% 35% 30% 28% HCL 18.7% 25% 20% Sterlite 40.5% 15% 10% 10% Indo Gulf 40.8% 5% 0% 0% FY97 FY98 FY99 FY00 FY01 FY02 Concerted efforts paying off 15
Restructuring to Create a Non-Ferrous Powerhouse Restructuring Move Restructured Hindalco Hindalco Indo Gulf Hindalco Aluminium Merger Copper DAP PMR Port Fertiliser Aluminium DAP Copper PMR Upto 100% Indal 100% Aluminium Indal Demerger Fertiliser Indo Gulf Fertilisers Aluminium Port (DHIL) Creation of a growth oriented company with augmented resource base to enable sustained delivery of superior value in a consolidating industry i 16
Garments: Acquisition of Brand Leader for Dominant Position in a New Sector Strategic Rationale Foray into brands as part of Portfolio restructuring efforts Garments identified as thrust area given its exciting growth prospects Madura Garments - an ideal opportunity to gain industry leadership: Leading and successful brand portfolio Strong distribution and marketing network Well planned strategy charted to sustain growth 38% 36% 34% 32% 30% 28% 40% 30% 20% 10% 0% Market Share Premium Shirts 32% 32% 34% 36% 36% 37% FY97 FY98 FY99 FY00 FY01 FY02 Market Share Premium Trousers 18% 20% 24% 30% 30% 30% FY97 FY98 FY99 FY00 FY01 FY02 17
Garments: Acquisition of Brand Leader for Dominant Position in a New Sector (Contd.) Impressive Growth in Garment Revenues Market Share FY02 4,000 Rs. Mn 3,500 3,255 3,499 3,000 2,500 2,179 2,447 Others 34% Madura Garments 28% 2,000 1,500 1,571 Arvind Mills 16% Raymonds 14% 1,000 CY 97 CY 98 FY00 (Annualised) FY01 FY02 Color Plus 3% Zodiac 5% Brand Revenues Have Risen Significantly since Acquisition in 1999 18
Established Leadership in All Key Businesses 3rd Largest Cement Producer Market leader in VSF Largest and fully integrated Aluminium producer Amongst lowest cost producers in the World Market leader in Copper Most efficient and low cost Urea producer Market leader in Branded Garments Dominant player in Carbon Black, Insulators and VFY Fastest growing cellular company Coverage extends over Maharashtra, Gujarat, Goa, A.P, M.P., Chattisgarh & Delhi Diversified Conglomerate With Established Leadership in Key Sectors of the Economy 19
The Result: Superior TSR Over Last 3 Years TSR (1) performance of BSE 100 cos. over 1999-2002 Annual TSR % (Apr 99 Mar 02) 100% 3 rd quartile 2 st quartile 1 st quartile -8% 5% 24% 75% 50% 25% 0% -25% M&M L&T MTNL ITC Videocon CumminsTELCO Indian Rayon (52) Tata Chem ACC Reliance Ranbaxy HLL SBI Siemens Reliance Petro Hindalco (43) Indo Gulf (19) Wipro Grasim (24) Infosys NALCO HDFC Bank Hero Honda Novartis -50% HCL -75% Hughes -100% Source: Prowess Database & Boston Consulting Group Reports (1) TSR Calculated as sum of capital appreciation and dividend payouts ( ) Figures in brackets indicate rank 25 50 75 100 No of companies 20
Strategic Efforts Getting Recognised in the Market 6200 Aditya Birla Group Performance 20030 c 5700 5200 4700 4200 3700 3200 2700 Group Mkt Cap Sensex 18030 16030 14030 12030 10030 8030 6030 4030 2030 Group Mkt. Cap (Rs. Crores) 2200 Apr-99 Aug-99 Jan-00 Jun-00 Nov-00 Mar-01 Aug-01 Jan-02 Jun-02 30 21
Leading to Sustained Outperformance (Rs.) 600 500 400 300 200 100 GRASIM Grasim Sensex 6000 5500 5000 4500 4000 3500 3000 (Rs.) 140 120 100 80 60 40 20 INDIAN RAYON Indian Rayon Sensex 6000 5500 5000 4500 4000 3500 3000 0 Apr-99 Aug-99 Jan-00 Jun-00 Nov-00 Mar-01 Aug-01 Jan-02 Jun-02 2500 0 Apr-99 Aug-99 Jan-00 Jun-00 Nov-00 Mar-01 Aug-01 Jan-02 Jun-02 2500 (Rs.) 1200 1000 800 600 400 200 HINDALCO Hindalco Sensex Apr-99 Aug-99 Jan-00 Jun-00 Nov-00 Mar-01 Aug-01 Jan-02 Jun-02 6000 5500 5000 4500 4000 3500 3000 2500 (Rs.) 100 90 80 70 60 50 40 30 20 10 0 INDO GULF Indo Gulf Sensex Apr-99 Aug-99 Jan-00 Jun-00 Nov-00 Mar-01 Aug-01 Jan-02 Jun-02 6000 5500 5000 4500 4000 3500 3000 2500 22
But, Still Has Substantial Upside Potential Grasim: PER FY02 Hindalco: PER FY02 16x 14x 12x 10x 8x 6x 25x 20x 15x 10x 21.9 18.8 15.7 16.5 14.8 11.5 10.9 11.5 6.4 25x 20x 15x 10x 20.8x 18.3x 12.4x 9.9x 9.5x 8.0x 4x 5x 5x 2x 0x 0x 0x Indo Gulf: PER FY02 14.0x 13.4x 9.5x 9.5x 8.8x 8.0x 7.4x 4.9x 4.6x Noranda Antofagasta Sterlite Indo Gulf Chambal Zuari Nagarjuna Tata Chemicals 23 Alcoa Alcan Pechiney NALCO Chalco Hindalco Madras Cements ACC India Cements L&T Grasim Phelps Dodge Semen Gresik Siam Cement Siam City Cement Malayan Cement Source: Bloomberg Data
Going Forward Enhanced Dominance in Key Businesses Geography specific businesses - build and retain dominance Cement, Garments, Fertilisers and Carbon Black Global businesses - domestic dominance coupled with cost leadership Aluminium, Copper, Viscose Staple Fibre, and Insulators Growth through brownfield as well as inorganic opportunities Under leveraged Balance Sheets Strong cash flows Heightened awareness of growth imperatives Emerging opportunities to support aggressive plans On-going consolidation in key business sectors in India Government dis-investment programme 24
Going Forward Shareholder Value Will Be Key Criteria for Decisions Shareholder value enhancement to remain the focal point for all decisions CVA to drive decision making across all levels of organisation Dispassionate evaluation of all businesses Continued value creation across companies Early identification of businesses with declining prospects for appropriate action Divest value destroying businesses at an appropriate time Listed companies to focus on identified core businesses No fresh crossholdings and concerted efforts to reduce existing crossholdings 25
Thank You