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No beating about the bush.
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.
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%.
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.