The AV Birla group is now increasingly dependent on its cement business or UltraTech Cement
to keep the finances on an even keel as the group's other businesses failed to generate adequate profits.
accounted for a record 77 per cent of the combined net profit of the group’s listed companies
in FY21, up from 72 per cent a year ago. The ratio was around 62 per cent five-years ago in FY16. UltraTech Cement
reported a net profit of Rs 5,463 crore in FY21 against the combined net profit of Rs 1,652 crore of other group companies.
India’s third biggest business group in terms of revenue and assets, the Mumbai-headquartered AV Birla group is a market leader in cement, aluminium, men’s fashion, viscose staple fibre, rayon and chemicals and is among top players in telecom and financial services. However, most of these businesses with the exception of cement that is housed under UltraTech Cement have failed to generate consistent earnings growth in recent years.
In FY21, the group's earnings were pulled down by lower profit of Hindalco, Grasim's fibre, pulp and chemicals business and loss in the fashion and retail business.
Excluding UltraTech Cement and loss-making Vodafone Idea, the group companies
reported combined return on equity of 1.8 per cent in FY21 – the lowest in over a decade. In contrast, the ratio was 12.4 per cent for the cement business. (See the adjoining charts, which do not include the financials of Vodafone Idea).
Overall, the combined net profit of the group’s listed companies was Rs 7,115 crore in FY21, down 11.4 per cent from Rs 8,029 crore a year ago. In comparison, UltraTech Cement’s net profit was down 5 per cent year-on-year in FY21. The group’s numbers exclude Vodafone Idea, which is a joint venture between AV Birla group and UK's Vodafone Plc. Our analysis also excludes Tanfac Inds – the group JV with Tamil Nadu government.
If Vodafone Idea’s numbers are considered, the group’s reported consolidated loss would have been Rs 37,118 crore in FY21 - the third consecutive year of loss for the group.
UltraTech is also the most valuable company in the group by a long-shot, accounting for nearly half of the combined market capitalisation of all group companies. On Friday, the cement leader closed with a market capitalisation of Rs 2.2 trillion against group companies’ combined market cap of Rs 4.7 trillion. UltraTech Cement is India’s top cement maker accounting for nearly a third of the industry’s production capacity and revenues in FY21.
Grasim Industries - UltraTech’s parent is the second most valuable company in the group with a market cap of Rs 1.02 trillion followed by Hindalco Industries at around Rs 1 trillion.
Analysts, however, see a sharp rise in the group’s profit in FY22 led by Hindalco Industries and Grasim’s fibre and pulp business on the back of a spike in global metal and commodity prices. For example, Hindalco earnings nearly tripled in Q4’FY21 on a year-on-year basis.
While Vodafone Idea lost money for the fifth consecutive year in FY21, other businesses with the exception of UltraTech Cement reported low single-digit return on capital employed (RoCE) and return on equity (RoE) in FY21.
The bulk of the group’s capital is however invested in the metal, telecom and the financial services businesses.
In comparison, Ultratech Cement is a minor part of the group in terms of revenues and assets. The company accounted for just a fifth (20.9 per cent) of the group’s combined revenues and only 17.6 per cent of its assets in FY21 – excluding Vodafone Idea. Including Vodafone Idea, UltraTech's contribution to the group’s revenues and assets is even lower at 17.5 per cent and 12.9 per cent, respectively in FY21.
The aluminium and copper producer, Hindalco Industries is the biggest company in the group, in terms of revenue and assets. It accounted for half of the group's combined revenues and around a third of its assets in FY21. It reported a consolidated net profit of Rs 3,767 crore in FY21, down 31.5 per cent from Rs 5,496 crore a year ago. This translated into a sub-par RoCE of 7.1 per cent in FY21, down from around 8 per cent a year ago. The RoE was even lower at 5.6 per cent, around half the Sensex companies’ average RoE of around 11 per cent.
Similarly, the group flagship Grasim Industries is facing an earnings slowdown at its core business of synthetic fibres, pulp and chemicals. The company’s net profit, on a standalone basis, has been stagnant for nearly six-years now.
The group's telecom venture, Vodafone Idea is however its biggest financial headache. Vodafone Idea reported a net loss of Rs 44,233 crore in FY21, albeit an improvement from a loss of around Rs 74,000 crore in FY20. The telecom major has now cumulatively lost Rs 1.37 trillion in the last five-years. AV Birla group is co-promoter and holds 26 per cent stake in India’s third largest mobile operator. Aditya Birla Fashion also reported a loss in FY21 on account of store closures due to the covid-19 pandemic.
Overall, out of the seven listed companies of the group, three namely Ultratech Cement, Aditya Birla Capital and Aditya Birla Money are the subsidiaries of Grasim Industries.
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