Case Analysis: Birla#1: The

Unknown Global Indian

Conglomerate

By
Divya Naik A(14F519)
Harshit Pandey(14F522)
Mandar Bothara(14F532)
Ravitheja Reddy Duvvuri((14F542)
Varun Subramanian(14S556)

Q1.In which industries should Birla Group focus on? Identify

by geography, sector and growth/profit.

The birla group can focus on certain specific sectors and businesses
depending on the long term and growth. From the case it is clear that the
Birla group at present is rather more focused on the long term growth
rather than just the have their foothold on various businesses , unlike
when Aditya Birla was at the helm. Aditya birla was more focused on
expanding his businesses quickly which he did by taking the business
outside India . certain sectors which Birla group can focus on are:
Telecom sector: the 3rd largest mobile services operator in India
is Idea cellular having a wireless revenue market share of 15 % in
Q1 FY 2013.The Company has a very huge subscriber base of over
117 million. Due to advancement in technology, the mobile phone
penetration in India has been increasing at a mercurial rate. So we
can see that there is a huge opportunity for Birla in this market.
Across PAN India, Idea has its presence in 22 circles with 2G services
and 3G services provided in more than 3,000 towns and 10,000
villages. Mobile banking and mobile commerce along with 4G and
LTE are areas where are massive growth opportunity and the group
could focus on in future..
Cement Industry: The cement needs in certain countries are
increasing, especially in countries like China and US is high which
has been mentioned in the case. There is a huge opportunity for
growth in South America in terms of infrastructure. So the group is
trying to expand into the countries in this region. The group is trying
to achieve a deal similar to the Novelis type acquisition in the
cement industry so that it could increase its revenues from this
segment.
Health insurance: Another important sector on which the Birla
group has its focus on. Joint venture with MMI holdings of South
Africa is already being planned. In the South African stock market ,it

is the 3rd largest health insurance company .combining the expertise

which MMI holdings has in the field of health insurance industry
and the Birlas geographic reach in India there is a huge untapped
market in this sector in India which they can explore together. This is
one of the prime focuses which can increase the revenue for the
insurance and financial services business of the Birlas.

Q2.Describe the methods Birla could use to unlock possible

conglomerate discount
Focused business will do better and commands a better value. Grasim
would be valued higher if it focuses on cement and viscose yarn. The
divestment of sponge iron segment is a move in this direction and the
company needs to do the same with textiles
Aditya Birla group can spin off the highest performing subsidiary of
the conglomerate; for instance, the telecom industry is the one which is
bringing in the maximum revenue. By taking this step, such subsidiaries
will have the benefit of taking its decisions independently and its
performance will not be adversely affected by low performance of the
conglomerate. This will help individually subsidiaries to grow faster.
The group can dispose the subsidiaries which are giving negative
profits. Such subsidiaries have very less contribution to the overall
performance of the conglomerate. This will unlock the conglomerate
discount as negative profit making companies bring down the value of the
conglomerate. Eg. BSLI
By acquiring more companies, it can raise the combined value of the
firm. Also, increasing it stakes in other companies will help Birla Group
raise the combined value of the firm and hence reduce its discount. One
step in this direction was increasing stakes in Idea Cellular Ltd.

Q3. Is it possible for a conglomerate to become too

diversified?

A business is strategized on the basis of the mission that it follows. In a

conglomerate like Birla, the mission and vision is derived on the basis of
its founders leadership direction.
Aditya Birlas expansion strategy led to the extreme diversification of the
groups business.
The strategy implementation requires the organisation structure,
employee compensation and management control system to work in the
same direction
So, if the firm decide to grow in every possible direction and if it has
resources to fund the inorganic growth of the business, it can easily
become diversified.

Birla had resources, reason for diversification and all other competencies
to grow.
In Birlas case, we see that Grasimm, Hindalco and AB Nuvo are extremely
diversified growing in unrelated sector.
When a conglomerate is divided in smaller firms, the individual firms can
use their competencies in order to create competitive advantage in order
to grow and become profitable.
Even if a part of the business is loss making it can be supported by others
till it gains its profitability.
Thus a firm can diversify in many unrelated business and grow
inorganically to extreme end.
Advantages and disadvantages
Advantages
Economies of scale and vertical
integration and be achieved
Funds can be transferred to loss
making businesses temporarily to
make it sustainable
Multiple resources of different
businesses can be pooled to other
businesses as well
Market related information can be
easily shared for competitive
advantage

Disadvantages
If the diversification is extreme it can
become problematic for the holding
company to manage the conglomerate
Some business can indirectly become
competitors if not organized in proper
structure
The parent company need to manage
multiple businesses and have expertise
in each of them
Too large an organization is prone to
several problems such as diseconomies
of scale

4) Does the diversification create value for the Birla Group in

India? How different is diversification likely to be valued
globally?
Cotton trading was the initial business when the house Birla was founded in 1857. In
1900 the company expanded from textile to aluminium, cement and chemicals. And there was
limited competition, as India was a closed economy until 1991, which helped Birla to grow at
a faster rate. The Birla group was having strong presence in every sector in pre and post
independence era when most of the businesses in India were in premature stage. The
diversification helped Birla group in building a wide market presence, brand visibility and
goodwill.
The Diversification of Birla created value for the conglomerate in India when it
acquired L&T cement becoming the second largest cement giant in India and fourth in the
world. Aditya Birla expanded the Birla group to the worlds largest refiner of palm oil and
viscose staple fibre and the only producer of linen in India. The Birla group has three flagship
companies Grasim Industries, Hindalco Industries and AB Nuvo. Grasim started as a textile

manufacturing company and later it diversified into cement, chemical and Viscose Staple
Fibre. Acquisition of viscose staple fibre industries turned out to be very successful as it the
second largest revenue contributor of Grasim. Like Grasim, Hindalco focused on commodity
market - Aluminium and copper. The strong footing of Hindalco in Aluminium and copper
industry reduced the risk by diversifying which also generated growth opportunities. And AB
Nuvo focused on Telecom and Retail.
Coming to the global context, the global expansion and acquisitions had given Birla
group wide presence in China, Canada, Australia and many other countries. In 1978, Carbon
Black was introduced by Birla Group in Thailand which helped to diversify in other sectors.
Due to rapid technological developments and proper focus on institutionalizing R&D helped
Birla group to be positioned at third rank among worlds producers of insulators and sixth in
carbon black.
Global presence of the group helped them to acquire world class technology which in
turn helped them in improving the standards. In addition, Global diversification helps in
minimizing risk of local fluctuations in currencies and other macro factors. It also helps in
enjoying economic leverage from sharing the infrastructure and R&D facilities.

5) Are the groups recent organisational changes

appropriate?