Kumar Mangalam Birla, chairman of the $50 billion Aditya Birla Group, on Friday said the coming decade would be one of increased capital expenditure for India’s corporate landscape, with the private sector firing on “two engines”—the conventional and the new economy.
“I believe we have upon us a forthcoming decade of CapEx Mahotsav in India,” Birla wrote in his annual reflections for 2021-22, released on Friday.
The twin balance sheet problem of stressed loans and over-leveraged corporates is now behind the country, he said.
“The private sector is also firing on two engines, the conventional and the new economy. I call it the ‘double-engine growth’. Investors are excited about growth prospects in core sectors as well as sunrise sectors. In my view, though, the word sunrise sector applies to the entire landscape in India, which includes both conventional sectors like cement, steel, power and auto and emerging areas like digital and renewables. Both hold the promise of high and sustained growth,” Birla said.
In India, a generation of entrepreneurs is now taking advantage of economic reforms as profound as those in 1991, said Birla.
“Lengthening lifespans and changing technologies are upending linear notions of career and life. A 20-year-old can build a multi-billion-dollar company, proudly wearing the badge of a college dropout. At the same time, a 50-year-old entrepreneur can build a company in a new space, confident that she has years ahead to see her dreams come to fruition. Skills from opposite ends of the spectrum are equally valued. Society, which has been bound by hierarchy, no longer remarks at mid-career and seasoned executive giving their services and stabilizing hands to a youngsters fired by the unbridled optimism of youth,” Birla said.Birla said the world is awash with capital and that there has perhaps rarely been a better time to be an entrepreneur, as everyone from angel investors to public markets lines up to back ideas.
The competition for investment opportunities and the fear of missing out has driven valuations of many fledgling companies to stratospheric levels, said Birla.
“Historically, the key question for any new business was whether it fulfilled an unmet consumer need. A hallmark of some new businesses today is that they seek to use the brute force of capital, combined with smart technology and operations, to create new needs that you did not even know existed. For example, is receiving groceries at your doorstep in less than 10 minutes a service that you cannot live without? Clearly, many consumers think so,” he wrote.
However, he added that ultimately, his own view is that at some stage, unit economics will have to matter. “And trusty old concepts like cash flows and gross margins will guide behaviour and actions. The only sustainable moat is one based on intellect. Large waves of cheap capital will eventually erode all other entry barriers,” said Birla.
Commenting on the ongoing global supply chain problems, Birla said the speed and magnitude of the global bounce back have surprised everyone but also left some constituents unprepared.
According to Birla, the nuances of supply chains and the intricacies of multi-modal optimization, from being the invisible wheels that oiled the global economy, have now become central to the discourse of many businesses.
“Whiplash effects have come into force, with shortages in humble $1 semiconductors in Taiwan, and a fire in a lithography factory in Berlin, lengthening the queues for eager buyers of new cars in India. In messages reminiscent of the licence era, hopeful car aspirants are now being put on long waiting lists as companies scramble to crank up production. On the one hand, container shortages in some parts of the world, combined with port pile-ups elsewhere, reinforce the point that the physical world still matters,” he said.
These whiplash effects have called into question a decades-long shift towards increasing efficiency and finely tuned precision operations that optimized operating costs but took away room for margins of error, he said.
“This is a stark reminder that in times of disruption (which we should increasingly expect with climate change), efficiency wins in the short term, but resilience translates to value in the long term. Nearshoring, reasonable inventory holding, multiple supplier alternatives and more sophisticated supply chain solutions are the near-term outcomes from this realization,” said Birla.
While taking cognizance of the severity of the ongoing pandemic caused by the Covid-19 virus, Birla said, “I often get asked how to deal with the highs and lows of life, and I think the biggest factor is equanimity. It is an acceptance that both adversity and windfall gains are impermanent.
“In the spirit of the times, I am also going to borrow a deep philosophical insight from the cryptosphere that is perhaps unintentionally powerful. WAGMI! Indeed, We Are All Gonna Make It!” concluded Birla. Livemint