SUMANT SINHA, CEO OF ADITYA BIRLA RETAIL
Interview by Tom Leander

Sumant Sinha, the scion of a well-known Indian political family and an investment banker by trade, joined Mumbai-based Aditya Birla Group as its first holding-company-level CFO in 2002. One of India’s venerable family conglomerates, the group has undergone a lightning-fast transformation from an industrial and commodity business
to a player at home and abroad in many sectors, including telecommunications and business process outsourcing. It has grown to US$25 bn in sales from US$6 bn in a mere five years. Having built the strategy for Aditya Birla’s global expansion, Sinha has just become CEO of the group’s burgeoning retail unit. According to Sinha, his tenure as CFO proved an exhilarating ride, mirroring India’s own heady economic transition.

How does Birla Group see itself amid a remarkable and competitive collection of Indian family-owned businesses, such as Tata, Bharti, and Reliance?

CFO Asia profiled the company in 2003 – more than three years ago, and at a time when our market cap was US$6 bn. I had just joined several months prior to that. The nation’s GDP has seen four years of 8%-plus growth. The market cap of the Mumbai stock exchange has increased four-fold. Today, the largest company in India is Reliance, about US$55m market cap up from US$10 bn in 2002. Bharti’s market cap today is US$35 bn. Ours is US$25 bn. The IT companies have grown massively. Infosys and Wipro are in the US$25 bn to US$30 bn range. What’s changed is that all of us, including Aditya Birla Group, are thinking a lot bigger.

How has this translated into action at Birla?

Traditionally we’ve been a manufacturing industrial group, producing industrial fiber, carbon black, cement, and chemicals. We’ve morphed into something much different. We’re now one of the largest apparel manufacturing companies in the country. We bought a telecom company, which is now the sixth largest in India. We purchased a call center company in Canada. We also started Birla Sun Life, an insurance partnership. We’re a much broader mix of manufacturing and services. Our next push will be in retail so we’re gathering forces in the consumer markets, trying to understand them. We’ve bought a chain of supermarkets in southern India as a first step, and I’m preparing this new business for growth. Finally, our business is far more global than four years ago. We employ 100,000 people, 45,000 of them overseas. Our most recent major acquisition will give us a footprint in the US. Through Hindalco Industries we bought Atlanta-based metals company Novelis for US$6 bn, our biggest purchase to date.

All of this suggests a huge change in mindset. What happened?

There was a lot of private equity activity going on around us, and we got to thinking – are we that much different than a private equity company based in the US? We thought we were similar. And once you accept this, possibilities open up. We looked at debt in a different way. Previously, we had always believed that the type of debt – recourse or non-recourse – made little difference. If there was debt in a company we acquired we saw it as our responsibility. But we’ve changed our viewpoint. The people who finance you, after all, charge more for non-recourse financing. There’s no reason to pay more and also have an additional obligation on your head. Our attitude now is, ‘If we’re paying more and the company defaults, don’t come to me.’ This change in mindset allowed us to have bolder dreams.

In what way?

Well, take a look at telecoms. The Tata Group wanted to exit its partnership with us in Idea Cellular. They wanted to get into CDMA exclusively and out of GSM. We purchased the company in June 2006 for about US$1 bn. We plan to infuse an additional US$120m into the company and expand into several states in India, and have raised funds via private equity and an IPO. What’s interesting is that in a short time, Idea Cellular has become the fifth-largest mobile phone company in India, and our third-largest enterprise in terms of revenues. In buying out the Tatas, we had to overcome a lot of hurdles in the negotiation, such as resolving an overly complex shareholder structure.

Was it difficult, as a CFO, to grasp the telecoms business so quickly?

Personally? No. You have to grasp the market and the business intellectually, but I don’t think it’s necessary to understand everything about daily operations.

Why the push to go global with the Novelis buy?

Well, Hindalco offered a perfect platform for an acquisition. It’s underleveraged – and in a global market which we understand thoroughly and can position ourselves as a leader. So we bought an iconic company, with US$9 bn in revenues, which has 20% of the market share in the US and which has terrific technology and great customers. The purchase price of US$6 bn would have been the largest overseas acquisition from India ever. It was trumped by the Tata purchase of Corus later in 2006. No matter.

What’s next?

Here I sit as a CEO of a new retail company. As a CFO, you have a tremendous job of support. To advise the CEO, for example. But as a CEO, everybody looks to you as the ultimate authority. It’s an adventure, because we’re creating a new business. Retail in India is a little like telecom five years ago. Customers then couldn’t tell you their preferences in value-added services, for example. They didn’t know such a thing existed. As the consumer market here gains momentum we’ll be fighting for a portion of that consumer wallet, some of which will be spent on media, entertainment, telecom, and retail. We’ve bought the supermarkets in southern India, and we’re researching how to launch our brand. Stay tuned.