Unity in diversity

14th June, 2010

Shyamal Majumdar
Business Standard
14 June 2010

Excerpt from the report

Ajay Srinivasan How Ajay Srinivasan is driving integration among the seven financial services businesses of the Aditya Birla group

His decade-long career at Prudential Plc was the stuff every St Stephens and Indian Institute of Management Ahmedabad alumnus like him would aspire for. As chief executive of the UK financial service power house's Asian operations, Ajay Srinivasan, then based in Hong Kong, was managing assets worth $60 billion. And just when speculation started that he was headed for London to become one of Prudential's global bosses, Srinivasan quit.

The destination he chose, however, surprised many, though Srinivasan says he didn't take much time to say yes to Kumar Mangalam Birla's offer to turbo-charge the Aditya Birla group's financial services business. But it couldn't have been an easy decision. The Indian conglomerate's six-year-old life insurance firm and the 13-year-old mutual fund were languishing at that point and the group had just quit retail broking apart from going slow on other services.

The structure also was a big problem. Though the Aditya Birla group had a strong brand equity, the financial services business was (it still is) under a loosely-formed Aditya Birla Nuvo, which is a holding company for diverse businesses such as insurance, textiles, telecommunication and even carbon black. On top of that, quite a few veterans who had held the financial services business together for long had already headed out.

But three years after taking charge, Srinivasan sounds credible when he talks about the "turnaround story". Consider the numbers. The growth shown by the financial services arm helped Nuvo return to profitability in the quarter ended March 31, 2010. The company reported a net profit of Rs 180 crore, compared to a loss of Rs 146 crore in the corresponding period of the previous year. For the full year, net profit was Rs 155 crore compared to a loss of Rs 436 crore in the year-ago period. The EBIDTA (income from operations) for the full year at Rs 1,686 crore was the highest-ever.

The journey that the Aditya Birla Financial Services Group - Srinivasan calls it a conglomerate within a conglomerate - has travelled in the three years since the new team took charge has been spectacular. Since 2007-08, consolidated revenues have grown over 40 per cent to Rs 6,139 crore in 2009-10, without including income from policy holder investment, other income and so on. Assets under management have increased by 40 per cent to around Rs 80,000 crore. The number of customers in the same period has increased to 5.6 million from 3.4 million, while the number of employees has gone up to around 16,000 from 10,000.

The numbers are still modest even by Indian standards - the life insurance and mutual funds businesses are the fifth largest in India - but Srinivasan says they should be seen from the perspective of where they were three years back. And the platform has been set for fulfilling the group's ambition to make these two businesses among the top three in India in the not-too-distant future.

He could well be right. Because even in a tumultuous 2009, Birla Sun Life Insurance clocked robust volume growth and gained market share even as others struggled. The company's market share in new premium income increased from 7.8 per cent in March 2008 to 10.4 per cent by the end of 2009-10. In such a challenging environment, Birla Sun's new business premium grew by 44 per cent against a 3 per cent decline in growth for the industry. If the life insurance business has been a success story, so has been the asset management business which saw assets grow at an average 31 per cent, compared with the industry growth of 7 per cent in that period.

Driving synergies
The first task, Srinivasan says, was to set the structure right by driving integration in the conglomerate of seven legal entities - from life insurance to mutual funds, private equity, wealth management, non-banking financial company, retail broking and a general insurance broking business. The idea was to see it as one virtual company with many real businesses. Earlier, they were all operating as islands with separate management structures and without a common vision. That has been set right, partly by giving a common identity to some of the firms. For example, the broking, wealth management and distribution businesses are now positioned under one brand, Aditya Birla Money. Attaching the Aditya Birla brand name to each of the businesses was important as investors in India still prefer safety over returns and are always looking for reassurance. Therefore, who offers the service is often much more important than the offering in the market.

Integration, the group believes, is critical because of the competitive advantages that can emanate from being able to drive synergies across the platform. "Whether we integrate the backend in terms of the way technology works or the front-end in terms of the way the customer sees us, what is important is that we must offer a common platform. Our view is that given our target customer with whom we are looking to build long and sustainable relationships, having a broad-based offering of products and services is critical," Srinivasan says.

That explains the group's initiative to make its top teams at all the seven arms sit together. It has taken up five floors at the One India Bulls Centre at Lower Parel with a seating capacity of 950. Earlier they were scattered all over Mumbai. Even the back office operations for its diverse financial services businesses have been brought under one roof at Thane, a Mumbai suburb. Earlier this month, the group set up its operations hub at a 95,000 sq ft state-of-the-art office with 1,350 seats.

But the bigger game plan has been to allow the separate management structures to continue with each company having its own CEO (except for life insurance where a global search is on) under a super-structure that Srinivasan heads. A crack team has been formed consisting of people who head functions such as marketing, information technology and so on across the group. For example, the group has replicated the IT platform across the seven businesses, whether it is facilities management, or common infrastructure in terms of network. Similar initiatives have been introduced in a number of other platforms like human resources and marketing. Apart from saving cost through less duplication of work, it helps operate as an integrated entity.

The group has now sought approvals to formalise this process through the formation of a holding company for its financial services businesses.

Distribution muscle
Almost 55 per cent of household savings lie in bank deposits, the penetration of products like mutual funds is less than 5 per cent of household savings and life insurance penetration is less than 15 per cent. This is the opportunity that the Aditya Birla Financial Services is planning to target.

For the group, therefore, building distribution infrastructure was the second critical element. Helped by the acquisition of Apollo Sindhoori, a retail broking firm from the Chennai-based Reddy family to take advantage of cross-selling opportunities with the existing insurance and mutual fund business, the financial services business has more than doubled its points of presence to over 1,600 (from 735 in 2007).

Another 200,000 channel partners ensure that the group's presence is spread across more than 500 cities. Aditya Birla Money, for example, has a distribution network of over 850 through its own and sub-broker branches, a large customer base in excess of 400,000 and a strong technology backbone.

Srinivasan says life insurance has got 600 branches, and the asset management company has 110 offices. It's a good enough base and going forward, there will be some amount of incremental expansions, but the focus now will be on driving efficiency and productivity across the channels. That's a key challenge.

Srinivasan says turbo-charging essentially involves building the pipes to push the products through. Another focus area has been customer experience because although this business can tend to be fairly hardnosed and very much about numbers, at the end of the day, "the way the customer experiences us, and the way the customer can actually deal with us at different points will differentiate one provider from another."

For example, Birla Sun Life Insurance set up a centralised claim settlement cell much ahead of its competitors. Last year, for example, it processed 99.49 per cent of all individual death claims received, processed 100 per cent of all death claims received for group business and achieved individual death claims outstanding ratio of 0.51 per cent and 0.00 per cent for group death claims.

Mr. Kumar Mangalam Birla, Chairman, Aditya Birla GroupNew businesses
While the acquisition of Apollo Sindhoori marked the re-entry of the group into retail broking, Srinivasan's top team has been active on other fronts as well to make it a diversified, one-stop financial powerhouse. Take private equity. Aditya Birla Capital Advisors, the private equity firm led by Bharat Banka, closed its maiden fund in March with a size of Rs 881 crore, much ahead of similar ambitions of the Tatas and the Reliance ADAG group. The target is to raise at least a billion dollars (Rs 4,700 crore) in three years.

Among the other initiatives, there are a few that stand out. One of them is an alliance with Korea's Woori Investment. Aditya Birla Financial Services Group will now be able to raise about $500 million funds overseas for its mutual fund, private equity and real estate funds. Besides, the alliance will strengthen Aditya Birla Money's position in the broking space by introducing an institutional overseas broking platform that can be used for institutional, high net worth individuals and non-resident Indian investment from Korea to India and vice versa. Then there was the recent partnership with SBI Cards to offer co-branded credit cards to all customers of the Aditya Birla group. The co-branded credit cards will be available to over 28 million customers of the group companies - Aditya Birla Retail, Aditya Birla Financial Services, Idea Cellular and Madura Garments.

"The eco-system of the group's huge customer base and small companies associated with the group is a huge catchment area for us, something others in the field haven't got. The good news is we have barely scratched the surface of this eco-system, so the potential is enormous," Srinivasan says.

Also on the roadmap is an aggressive entry into the rural space and Srinivasan wants to replicate the "sachet story in the FMCG industry" in the financial services space also. That means volume play with low-ticket products. He is, however, mum on the specifics and would only say that what his seven companies have done so far is just the first phase of a long success story.