K.M. Birla, Chairman, A.V. Birla Group: He has his eyes on the consolidation of commodity businesses

Freedom from capacity restrictions. Freedom to acquire companies, even public sector companies being divested. And freedom to go global.

Only three years ago, references to contractions like VSF, PSF and PFY, and industries like carbon black and sea water magnesia invariably drew guffaws of derision from dotcom-seduced investment bankers, it-enamoured punters and ''new-economy'' editors, who obviously knew zilch about what they arrogantly dismissed as the ''old economy''.

Today, that ''old economy'' is very much alive, much of the ''new economy'' is in tatters, and a few of its gurus have had to climb down from their tony towers and eat crow.

Fifty-six years after Independence, and 12, after liberalisation, India's manufacturing sector has finally managed to make up for the time lost during the socialist decades by building capacities and achieving efficiencies that makes it competitive on the global stage. Also putting the brakes on India Inc. was the licence raj, during which the only ''strategic'' reason for Indian promoters foraying into a particular business was their ability to grab a licence. But once industry was unfettered, companies gained the freedom to decide which businesses they wanted to be in, how large they wanted their plants to be.

The results are there to be seen. A.V. Birla group's Kumar Mangalam Birla heads a Rs 30,000 crore empire, 92 per cent of whose turnover comes from commodity businesses like cement, copper, aluminium, chemicals and carbon black. In the last five years, he has done six acquisitions in cement, aluminium and copper, which have helped him achieve dominant marketshare.

First-generation entrepreneur Anil Agarwal of Sterlite Industries built from scratch the Rs 7,200 crore Sterlite group in just 17 years, along the way acquiring public sector units like Balco and Hindustan Zinc, in the process rapidly moving towards his goal of becoming a global metals powerhouse.

Narottam Sekhsaria, whose Gujarat Ambuja Cement entered the already mature cement industry as recently as 1986, has built a cement empire which tots up to be the third largest cement player in the country.

And the Ambanis' Reliance Group is now the second largest producer of polyester in the world.

It's easy to attribute the emergence of India's commodity czars to a blanket flash of the liberalisation wand, but to be sure there were plenty of prongs of economic reform that went into making these companies lean, mean and competitive.

Not all of it was pleasant, particularly the lowering of tariff walls and the consequent reduced protection to Indian manufacturers. But promoters who were able to survive that period of pain are today in a position to flourish.

Reforms for their part brought in several advantages. Two examples: Companies with growth plans can now access global markets for cheaper funds; and the disinvestment of public sector undertakings has provided India Inc. with growth opportunities.

Avers G. Ravishankar, CEO, Cris-infac, the research and information subsidiary of CRISIL: "The nineties enabled the businesses to achieve scale to be competitive in global markets.''

Adds Lord Raj Kumar Bagri, Chairman of the London-based Metdist group and former Chairman of LME: ''If you are restricted by controls, you are looking at a smaller picture.'' Not any more.

Reigning King Of Commodities

Kumar Mangalam Birla may have entered new growth areas like software, telecom, and branded garments in the last few years, but there's little doubt about his focus area: It's commodities like cement, aluminium, cooper, fertilisers, viscose staple fibre and carbon black that the 36-year-old Chairman has trained his sights on, with the dominant strategic theme over the past five years being consolidation.

When Birla took charge of the Rs 30,000 crore conglomerate in 1995, his challenge was to build scale for the commodities business. The liberalisation of the economy six years later coincided well with Birla's aggressive ambitions. Since 1999, he has proved to be a dominant consolidator, as he began picking up cement plants across India.

In June 2003, Grasim, the flagship of the Aditya Birla group, picked up a 51 per cent stake in the cement business of Larsen & Toubro for Rs 2,200 crore. Result: Grasim leapfrogged to become the seventh largest cement producer in the world, with the largest capacity, of 31 million tonnes, in one single geographic territory.

Birla has also had his task cut out, making sense of the diverse businesses the group had entered into during the licence raj. He's done so via a series of spin-offs and restructuring initiatives.

The consolidation of the copper business of Indo-Gulf with Hindalco, the open offer for Indal and the acquisition of Nifty mines in Australia to make Birla Copper an integrated copper producer are examples of how Birla is moving towards transforming Hindalco into a globally competitive non-ferrous metals powerhouse. At the same time he hasn't hesitated in getting out of businesses like refining and sea water magnesia.

The mission of this transnational conglomerate with operations spread over 18 countries and 40 manufacturing facilities is to get to the top league in businesses where it has clear competencies. And as the Indian units strive to be global players in their own right, Kumar Mangalam Birla says: ''I believe that we can be truly proud of their (our overseas units) achievements-in many ways they hold a mirror to what the future economic scenario will be in India, with duty differentials reducing to global levels.''

MUKESH (L) AND ANIL AMBANI Chairman & MD and Vice Chairman & MD, Reliance Industries Ltd Today, RIL is the second largest producer of polyester in the world, has a 51 per cent marketshare in polyester products, and is the world's third largest producer of paraxylene

Prince Of Polyester

Back in 1980, Reliance Industries Ltd (RIL) received a letter of intent to manufacture 10,000 tonnes per annum of polyester filament yarn at Patalganga in Maharashtra. The plant started production in November 1982. Five years later it added 15,125 tonnes per annum (TPA) capacity, and was one of the 40 producers in India. Today, RIL is the second largest producer of polyester in the world with 9,00,000 TPA capacity, has a 51 per cent market share of polyester products (Polyester Staple Fibre, Polyester Filament Yarn and Polyethylene Teraphthalate), is the world's third largest producer of paraxylene, and the largest manufacturer of polyester intermediates with an overall market share of 78 per cent.

Given the fragmented structure of the industry, RIL acted as a consolidator. Over the last five years, RIL took the lead and acquired five polyester units including ICI Polyester, India Polyfibers, J.K. Corp and Raymond Synthetics with a combined capacity of 2,60,000 million tpa in multiple transactions. RIL's polyester growth strategy has been two fold: Capacity expansion through attractive acquisition deals, and building cost competitive facilities at existing sites.

Today, with the presence of only two large players-RIL and Indo Rama-the pressure on margins in the polyester industry has come down considerably. The two leading companies have split geographical markets and export quantities so as to minimise transport costs.

N. Sekhsaria, MD, Gujarat Ambuja: A relatively recent entrant, Gujarat Ambuja is already India's third largest cement player

Cement Czar

When Narottam Sekhsaria, Managing Director of Gujarat Ambuja, entered the cement business in 1986, the industry was dominated by acc and Aditya Birla group companies Grasim and Indian Rayon. Consequent to the removal of price and distribution controls in March 1989 and licencing requirements for capacity creation in July 1991, today, Sekhsaria ranks among the top three players in cement with a capacity of 13 million TPA) and revenues in excess of Rs 2,100 crore.

The liberalised polices have aided Sekhsaria build his cement empire. In the first year, Gujarat Ambuja's 0.7 million TPA plant was a pygmy compared to 10 million TPA of acc. But 16 years later, Gujarat Ambuja's cement capacity has grown to 13 million TPA, through acquisitions of Ambuja Cement Eastern (earlier Modi cement), Ambuja Cement Rajasthan (earlier DLF cement) and greenfield expansions. What's more the company has a 14 per cent strategic stake in acc.

Sekhsaria's strategy in cement has been two-fold: grow in size and build value. As Sekhsaria points out, in a commodity business, a manufacturer has to add real value to the consumer because that's the only differentiator in an otherwise standard business.

How did he do it? Availability of fresh cement is critical. Gujarat Ambuja set up a bulk cement terminal on the outskirts of Mumbai so that the city receives fresh cement. And Ambuja was the first company to introduce paper bags for cement in place of HDPE bags, despite being costlier by Rs 3 per bag.

ANIL AGARWAL Chairman & MD, Sterlite Industries Anil Agarwal built the Sterlite group from scratch, acquiring PSUs like Balco and Hindustan Zinc, and in the process moving towards his goal of becoming a global metals powerhouse

Metals Maven

He started as a scrap trader from Patna in 1976. By 2003, he had built a $1.5 billion (Rs 7,200 crore) non-ferrous metals powerhouse.

For Anil Agarwal, the Chairman of Sterlite Industries, liberalisation provided an opportunity to flourish as an entrepreneur. Agarwal's strategy has been to acquire ailing companies cheap and turn them around. His first move was in 1976 when in order to set up a cable company he acquired Shamsher Sterling in Mumbai. He then integrated backward and set up copper smelting plant in Tuticorin, Tamil Nadu, in 1997.

When PSUs like Balco and Hindustan Zinc were up for disinvestment, Sterlite bid aggressively to acquire them-Balco in 2001 and a year later Hindustan Zinc. Next, it could be Nalco or Hindustan Copper. Earlier, in 2000, he acquired copper mines in Australia so as to have control over raw materials.

He did the same for another raw material, aluminium, by acquiring Malco in 1995 and India Foils in 2000.

Plans are now afoot to expand the group's aluminium capacity to 3 lakh TPA by November 2003, through expansions. Through the process of acquisition and capacity expansion, Agarwal is aiming at a turnover of $4 billion (Rs 19,600 crore) in the next three years.

Sure, liberalisation has helped him. Yet, Agarwal who now has a London-based NRI status, feels that it is not possible to create a global company sitting out of Mumbai. That explains his 44, Hill Street, London address.