SITTING DUCKS GET MORE VIGILANT

By Ruma Dubey

During the AGM of Century Enka on 27th June 2009, the stalwart of Indian industry, B.K.Birla had repeated what he had been saying quite often – increasing promoter holding is all his group companies. And this was repeated by him once again in Jan 10’. The then 90-year old patriarch had given himself time of 2-3 years to complete this task as he was getting ready to hand over the baton of his companies to his grandchildren and children with promoters holding in all group companies, comfortably around 50%.

Take a look at the table given blow and it becomes apparent that except for Mangalam Cement, he has kept his word and slowly but surely helped chalk out a stake hike. Increasing promoters stake, in today’s time of predators is an essential but slow task. There are only two ways to do this - creeping acquisition and preferential issue. In creeping acquisition, promoters buy their own shares from the open market upto 5% each financial year, till it reaches the limit of 75%. Earlier, the limit was 55% and in Oct 2008, it was hiked to a cap of 75%.  This would take years to reach the target of over 50% as currently, even in companies like Century Textiles, Century Enka, Kesoram Industries and Mangalam Cement, the promoter holding is lower than 50%. With a 5% restriction, there isn’t much stake hike that can be done swiftly.

In companies like Jay Shree Tea, Kesoram Inds, Mangalam Timber and ECE Inds, the stake hike has been commendable. But above 55% in such companies, which are today are a part of our India Inc folklore, would be much comfortable. Interestingly, neither BK Birla nor his wife, Sarla Devi Birla have now got no stake in ECE Industries.

Pilani Investments, like Tata Sons now, is the holding company of the entire Birla clan. Since the Lodha debacle, the Birla clan has been consistently hiking its stake in this valuable company. Pilani has a 36.78% stake in Century Textile, small stake in Jay Shree Tea, 24.92% stake in Kesoram Industries, 4.2% stake in Mangalam Cement. In 2005, B K Birla acquired shares of his nephews in Pilani and thus hiked his stake from 25% to 57.55%. Around 8% shares in Pilani continues to be held by close associates of B K Birla, which means his stake, actually stands at around 68%.

Hence, more than creeping acquisitions, preferential issue through warrants is likely to be the most preferred route. Stake is raised at less than the market price. Preferential issue is usually of fully/partly convertible debentures. In these preferential issues, promoters are not required to pay any money immediately. It is usually redeemed only 18 months after the issue. This way, promoters not only manage to hike a substantial stake in the company but also in the process, raise money faster and much cheaper than through an IPO or rights issue. Hindalco, Tata Power, Reliance Inds, Bombay Dyeing, Axis Bank are some of the few which come at the top of the mind when one talks about hiking promoters stake thro preferential issue.

Blue chip companies of those times had a very loyal and reliable investor in LIC and this trend continues today also. In fact LIC has a big 11.08% stake in Hindalco, 6.97% stake in Grasim, 2.83% stake in Ultratech Cement, 5.83 stake in Aditya Birla Nuvo. It is only in Idea Cellular that LIC holds no stake.

Talking about Kumar Mangalam Birla, he has learnt his lessons of the past well and most of his companies, the new generation ones, have higher stakes – Aditya Birla at 53.74%, UltraTech at 61.96% but stake in the “older” generation company, Hindalco stake remains at 37% and Grasim is still lower at 25.52%.

In an era of hostile takeovers, having a comfortable promoters stake to thwart any such takeover intentions is extremely important. And it is comforting to see that B K Birla worked towards hiking the stake. Hopefully, the Tata’s would also take a cue from this octogenarian and take similar measures to hike stakes.

Some interesting tidbits:

  BK Birla and his wife, Sarala Devi got engaged to each other in 1941 at Sewagram in a humble homestead in the heart of the country, and surrounded by Bapu, Kasturba Gandhi, Sardar Patel and more importantly, Jamnalal Bajaj, who brought the couple together. Today they have been married for 71 years.

Sarala Birla's father and Congress leader Brijalalji Biyani was a progressive person who sent his daughter to Ferguson College in Pune when studies were a taboo for women from Marwari families.

Bk Birla has 3 three children, two daughters, Manjushree Khaitan and Jayashree Mohta and son, Aditya Birla, who passed away. His daughter-in-law is Rajashree Birla, grandson Kumar Mangalam Birla and his wife Neerja Birla, granddaughter Vasavadatta and husband Kushagra Bajaj.

The Birla Building, on RN Mukherjee Road in Kolkatta houses the corporate headquarters of all Birla companies in India except Kumar Mangalam Birla's, whose firms are headquartered at the Aditya Birla Centre in Mumbai. Those who have chambers there include BK Birla, SK Birla, the late KK Birla and GP Birla, Chandra Kant Birla, Sidharth Birla and the late Madhav Prasad Birla.

The next generation includes only three males. Chandra Kant (son of GP Birla), Sidharth (son of SK Birla) and Kumar Mangalam (son of Aditya Birla and grandson of BK Birla).