Economy & Nation   Exclusive
Kumar Birla’s Living Media investment is a bet on a sunset sector

Kumar Mangalam Birla’s investments in “sunrise” sectors over the last decade have been garments, retailing, telecom, financial services and software. All these have fetched very poor returns. Now comes his investment in the messy, unprofitable and sunset media sector
 

Kumar Mangalam Birla has just bought a 27.5% stake in the Living Media group which publishes a clutch of magazines such as India Today, Business Today, Cosmopolitan and so on. The group also runs channels like TV Today, Aaj Tak and has a printing press called Thomson Press. The acquisition was done through Kumar Birla’s private investment company. While announcing the stake buy, Kumar Birla said “The media sector is a sunrise sector from an investment point of view. I believe that Living Media India offers one of the best opportunities for growth and value creation.” Both these are questionable. If you look at the balance sheets of all but a few of the largest companies, the media looks like a sunset sector and Living Media not exactly in the pink of health.

Mercifully, shareholders of Indian Rayon and Aditya Birla Nuvo have been spared of this adventurism. Aroon Purie, a chartered accountant who controls the India Today group, has so far kept Living Media and Thomson Press private, and has publicly listed only TV Today.

According to the data we have of 2010, Living Media made a loss of Rs12 crore for March that year. In fact, all except some English publications like the Times of India, Hindustan Times and the leading regional publications (like Malayam Manorama or Ananda Bazar Patrika) are losing money—as are top TV channels like NDTV and TV18.

If Mr Birla genuinely believes that media is a sunrise business, the question is how many times will Mr Birla get carried away by trying to invest in so-called sunrise sectors?

Kumar Birla has been dreaming of sunrise sectors for over a decade now—ever since he inherited the old fashioned metals, cement and textiles businesses when his father Aditya Birla passed away in 1995. He entered the telecom business (Idea Telecom), financial services (Birla Sunlife Mutual Fund and Birla Sunlife Insurance), sold stock the broking business and later bought again (Apollo Sindhoori) and took over the garments business of Madura Coats, paying Rs235 crore to acquire Van Heusen, Louis Phillipe, Allen Solly, Peter England and started a retailing business.

Among the sunrise businesses he had identified in 2001, was software. In June 2001 Indian Rayon bought 50.35% controlling stake from France’s Groupe Bull in PSI Data Systems (PSI) at a price of Rs186.80 per share in cash—costing Rs71 crore.  Commenting on the deal, at time, Kumar Mangalam Birla had said “This strategic foray into the technology sector is part of a well-crafted plan to enhance value for Indian Rayon shareholders, through significant rise in growth and earnings. Our aspiration is to attain a leadership position in this sector.” While spending Indian Rayon’s money in buying PSI and Madura garments, Kumar Birla had also declared that the company has undergone a major change in profile by getting into businesses in which “knowledge and branding are key”. That sounded like a powerful wish but was it grounded in reality? In June 2003, Mr Birla even went into the low-margin business of call centres by buying Transworks. The outcome? PSI Data got delisted in March 2009, after destroying 60% of shareholders’ wealth over eight years. Madura Garments hardly makes any money consistently.

The fact is, like the media Mr Birla is willing to fund now, all these businesses—garments, software, IT services, financial services and retailing, telecom— were also described as sunrise businesses and were claimed to be value creating. None of these have delivered return on capital that justified investments in them. Mr Birla’s attempt to make over the commodity-oriented group, through an entry into the glamorous businesses has added to the group’s profile but not much to its bottomline. All these new-gen businesses are limping because they need focused and innovative entrepreneurship while Mr Birla’s principal strength is access to capital.

Possibly chastened by the financial outcome of these dubious forays, Mr Birla has decided not to use public-listed companies to finance his media wish. In that sense, his private investment in Living Media marks a departure from his earlier adventures. He will be a passive and personal investor in an unlisted company. That doesn’t answer a key question: Will he again be throwing good money after bad having fallen for glamour? That depends on how well he understands the media business.

The economics of the media business in India is completely been vitiated over the past decade or so. It is not a business where the more efficient thrive. It is not a business which is delivering improved quality of products and services to masses. Indeed, many of the better media companies are financially crippled today because the competition for advertising revenues is too intense. So, why doesn’t the supply of media products and companies shrink?  Because poor quality media companies are not pushed to the wall and do not go out of business. Their losses are supported by politicians and businessmen for their own vested interests. Why have three new daily newspapers sprung up in a poor state like West Bengal over the last two years? If there was ever a sunset business, it is media, especially the print part, which is core of Living Media. And Aroon Purie has publicly stated that the promise of digital media is overblown. Kumar Mangalam Birla seems to have not only got carried away once again in his quest for sunrise sector but this investment is surely one of his worst.

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COMMENTS

sanujkr

7 years ago

ear sucheta

will you only invest in companies which are Profitable, then why did you start Money Life, as a Non profitable organisation and trying to empower investors..

you should understand Media is not just for making profit or Money, they have a social responsibilty , by doing this resposibly and honestly, everybody cant make Money. Mr.Birla Put money into INDIA TODAY Group not for getting dividends. its his responsibilty to support an indepentant media house to survive in the longrun...group

Shibaji Dash

7 years ago

The Committee on Corporate Governance was constituted a decade or so ago under the Chairmanship of KMB. The report was submitted.At that time the name KMB sort of spelt magic. Today, sadly, it does not.Some of the reasons are embedded in the views expressed so far. One wonders why the health care sector which has only two major players with limited share of this promising niche market did not tickle the imagination of KMB.

REPLY

nagesh kini

In Reply to Shibaji Dash 7 years ago

Are Birla's not major stakeholders in health care with Bombay Hospital?

Nagesh Kini

7 years ago

Narayan Murthy of Infosys also got on the board of NDTV and exit too?

Sonali

7 years ago

I think, this is one of the best analysis of how best one can waste money. thanks ML for highlighting the poor vision of KMB. The typical born with a silver spoon, and their cronies like Manali think like they knew everything and they are the wisest. Unfortunately, when it comes to balance sheets, they have been proved ingorant all the time. Isnt it time for the likes of KMB and Manali to take a break. Grow up...

jayesh Shah

7 years ago

I agree... I was idly glancing through the comments and remembered that this is not the first time Birla had lost money. In fact there was something in Birla Money.
Here is a link: http://new.moneylife.in/article/aditya-b...

And I found it in moneycontrol as well - so you were not alone in trashing him
http://www.moneycontrol.com/news/feature...

Hemant

7 years ago

I was not surprised abt this move of Mr Birla.He has habit of doing this often.Initially he written off 100 cr investment made in carbon project then the famous MRBPL sell @ Rs:2/= to ONGC.So still investors go for his companies,they deserve to loose.

Sharad

7 years ago

Excellent facts and analysis

IT professional

7 years ago

Birla IT foray as Birla Consultancy Service (renamed Birla Technologies) was disaster. PSI was dud acquisition.

Manali Rohinesh

7 years ago

A well argued article..but if Mr Birla had offered MoneyLife his cash..would you have turned him down? You have one magazine which is mostly read online by readers like me, who chose to read you in the first place! India Today has everything from Harvard Business Review to Reader's Digest to one of the best current news magazines in the country. So, while they can't point to a healthy balancesheet at the moment, they have still been around longer than MoneyLife. So, when MoneyLife completes 30+ years in good health and then gets a little vital cash infusion, due to wear and tear, no one would grudge it that.

As for whether it makes business sense or not, well a lot of businesses run on debts and loans and refinancing. What are banks there for? They certainly don't only survive on peddling loans and products to me!!

REPLY

shanta kulkarni

In Reply to Manali Rohinesh 7 years ago

What is your point, if any?

Or are you not getting the fact that this is about Kumar Birla not about living media...

Manali Rohinesh

In Reply to shanta kulkarni 7 years ago

It's about Kumar Birla's investment in Living Media and my point is 'It's his money and others would have been happy to take it too'. Wasn't that clear to you? And to emphasize it a little more clearly...other media companies with less pull and products out there would love to be in Living Media's place.

rakesh

In Reply to Manali Rohinesh 7 years ago

Sure.
And so kumar birla will throw it?
Did you understand the point of the piece?
its not about living media, about birla.

Manali

In Reply to rakesh 7 years ago

Even Apple and Google have miscalculated and made investments in dud products/projects. It's good to know they weren't listening to you because they must have learnt something along the way. So, if money is thrown away..it must be because the owner of that money saw some value in what he was investing in - and it's surprising that you don't seem to get that.

And I'm entitled to my opinion..just like the way some of you are parroting each other. So, don't try to correct my viewpoint because I don't care about yours. My comments were my takeaway from this 'piece'.

rakesh

In Reply to Manali 7 years ago

"if money is thrown away..it must be because the owner of that money saw some value in what he was investing in"
That is the whole point. What is that value, in case you know it?
Please enlighten us and the Moneylife writer. You seem to be much smarter

sachin rao

In Reply to rakesh 7 years ago

Looks like this Manali person has a problem with Moneylife ... hard to believe she is on a business/finance/ personal finance website and does not realise that your analysis is not about likes and dislikes and whether people would be happy to get Birla's money -- but about Kumar Birla's judgement.

He he... did moneylife offend her in some manner?
I wonder why all of us are taking her seriously - me included. Just tempted to join the debate, I guess :-)

Ravi Shyam

7 years ago

Since its inception Moneylife has stayed focussed on issues that matter and helping its readers get sensitised to the realities that surround us. While investors interest and welfare has been its core thrust,this article armed with irrefutable facts brings out the case that this investment is one of due negligence and certainly not of due deligence!

REPLY

prakash

In Reply to Ravi Shyam 7 years ago

Couldn't agree more.

Economy & Nation   Exclusive
TV Today investors over-react to Kumar Birla’s investment in Living Media group?

The Aditya Birla Group has invested 27.5% stake in Living Media India, a holding company of TV Today Network, for an undisclosed sum. Will this change the business model of TV Today?

TV Today Network (TV Today), a media company, owned by Aroon Purie’s Living Media India (Living Media), has hit the upper circuit of 20%, to close at Rs64.80, on news that the Aditya Birla Group would be investing in 27.5% of Living Media. 

According to the Bombay Stock Exchange (BSE) filing, Aroon Purie, chairman of the India Today Group, said, “I am delighted to partner with the Aditya Birla Group to aggressively address the current and future potential of the Indian media business, which is at a tipping point. The Aditya Birla Group with its strong leadership, global footprint, diversified business interests and its shared values of integrity, commitment and social responsibility is a perfect fit with the India Today Group.”

However, it seems the market may have over-reacted too much by pushing TV Today up. The market seems to have made the assumption that investment in Living Media will somehow change the business model of TV Today. Living Media still holds a 57.11% majority stake in TV Today and this capital infusion from the Birlas is unlikely to affect the listed company, TV Today, in a significant way. Besides, TV Today and Living Media are two entirely different business models. It is even entirely possible that none of the capital infused will find its way to TV Today.

In fact, according to Economic Times (Kumar Mangalam Birla buys 27.5% stake in Living Media Group), Living Media may use the capital to launch a tabloid. If this is the case, what has the investment got to do with TV Today? 

According to the same filing with the BSE, Kumar Mangalam Birla quoted, “the media sector is a sunrise sector from an investment point of view. I believe that Living Media India offers one of the best opportunities for growth and value creation.” According to media sources, the Aditya Birla Group has invested over Rs350 crore to buy the stake.

TV Today makes money but not much. Its revenues have stagnated over the past five quarters and its return on net worth is a pathetic 4%.

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Economy & Nation   Exclusive
Jain Irrigation Systems: Can’t pay its huge debt and wants to conquer Africa

The micro irrigation company is facing slowing sales growth, increasing delay in release of government subsidy receivables and consequently high working capital and high interest cost and yet has committed an investment of $375 million in sub-African countries
 

Jalgaon-based Jain Irrigation Systems has said that it has committed investments and projects of $375 million over next few years in sub-Saharan Africa. However, from where will it get the money, still remains unanswered. This is odd because, the company has huge debt on its balance sheet in India and has not been paying its dues to the banks. Even its receivables for FY11-12 were 343 days, which means the company has yet to receive cash for its sales done almost a year ago.


Especially, when we look at Jain Irrigation’s fourth quarter results, the situation becomes serious. The company had shown a 59% increase in its net profit to Rs173 crore for the quarter to end-March. However, this has come due to lower tax rate, availment of tax holiday and tax benefit write back from earlier years, in addition to a forex gain of Rs15 crore. Its standalone net sales remained muted at Rs1,237 crore during the fourth quarter.


Shares of Jain Irrigation have already been corrected by over 50% in the past one year on account of balance sheet concerns, its move to launch a finance company and worries of slower growth. Even today, its shares are trading at Rs76, somewhat closer to its 52-week low.


During the quarter to end-March, Jain Irrigation's micro irrigation business (MIS) sales growth remained negative due to lower credit period to farmers and the company’s failure to reduce high receivables and increase cash collections, especially from Karnataka and Tamil Nadu. Its other businesses like pipe and agro products have also shown a muted performance during the fourth quarter. This also means that whatever figures the company has shown on its balance sheet, as revenues are yet to be realised and there is no fixed period for its realisation.

As on March 2012, Jain Irrigation’s consolidated and standalone gross debt stood at Rs3,800 crore and Rs2,800 crore from Rs3,700 crore and Rs2,800 crore as on December 2011. During the fourth quarter, receivables in its MIS, its high margin business, stood at 343 days as against 340 days in December 2011 and 355 days in September 2011 and the company is planning to reduce it to 270 days in near future.

The company has witnessed a challenging FY11-12 on account of slowing sales growth, increasing delay in the release of government subsidy receivables and consequently high working capital and high interest cost and depreciating rupee, resulting in mark-to-market notional losses due to long term foreign currency assets. 

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