Hindalco rights were below intrinsic price: Kumar Birla

Commodity bias has stopped the Aditya Birla Group to always be prepared for a downturn. So, in this volatile economic situation, the company with slowing growth and crashing commodity prices is a somewhat familiar challenge here. But sometimes, poor policy can pickle an already souring situation.

The Group's company Hindalco’s Rs 5,047 crore rights issue devolved two weeks ago. When filed, the rights issue, at Rs 96 a share was priced at a considerable discount to the market price of Rs 140. But regulatory processes meant by the time it came to market, the rights price made little sense forcing underwriters to pick up 40% and Kumar Mangalam Birla to pick up 18.6% more than the promoter’s share of 31.4%.

The issue would have succeeded if Sebi allowed fewer time lags in issue pricing, especially in such market conditions. The rights issue proceeds are meant to refinance one-third of the USD 3 billion debt Hindalco took on to make its audacious USD 6 billion purchase of Novelis, a bet that Kumar Mangalam Birla still stands by. After all, he just put his money where his mouth is.

Kumar Mangalam Birla, Chairman, Aditya Birla Group said, "We have a huge sense of confidence in Hindalco." He thinks that the price was far below intrinsic price; it was lower than what the price would be just given the cash on its balance sheet. "So, we had underwritten the issue to the extent of 40% by the banks at 50% and by us as promoters," he added. He further said, "We did get 90% of the cash that we wanted in the kitty. I’ve strongly believed that had it not been for the crisis that we suddenly found ourselves in, I think the issue and the price at which the issue happened would’ve been a huge success.”

The diversified Birla group also owns Idea Cellular. It is amongst the leading players in service providers domain. According to Birla, the best years of telecom are over because of increase in the number of players then you had to start with. “It still remains a very attractive business for existing incumbents - those who have a network or are spreading out their network like Idea is and those who are on the cusp of growing up like Idea and that’s not a spiel for Idea. But, the new players who intend to come in will find it very difficult to survive in this market.”

Source: Moneycontrol