Aditya Birla GroupAditya Birla GroupOn a sustainable high growth pathOn a sustainable high growth path

BySumant Sinha CFA

President – Finance

Bear Stearns - Motilal Oswal India ConferenceNew York, August 2005

1

Aditya Birla Group: An introduction

Amongst fastest growing business houses in India

A successful corporate with enviable track record, both in India and overseas

A caring corporate citizen with benchmarked governance practices

Anchored by 72,000 employees; Trusted by 700,000 shareholders

Aggregate revenues of $7.3 bn and Net Profits of $790 mn

Group flagships enjoy leadership in key businesses

Grasim - Cement & Viscose Staple FibreGrasim - Cement & Viscose Staple Fibre

Hindalco - MetalsHindalco - Metals

Indian Rayon - Apparels, Insurance, IT / ITeS, Carbon Black & VFYIndian Rayon - Apparels, Insurance, IT / ITeS, Carbon Black & VFY

Indo Gulf - FertilisersIndo Gulf - Fertilisers

UltraTech - CementUltraTech - Cement

2

Global vision, Indian values

Financial Prudence

Streamlined Systems and

Processes

Corporate Governance

Principles of Trusteeship

Emphasis on Cost Leadership and Efficiency

World - class Quality

Operational Excellence

Significant strengths built over the years

3

Pioneers of globalisation in India

Overseas operations contribute over 25% of Group revenuesSuccessful operations in 18 countries Manufacturing across 9 countries in 3 continents

Canada Egypt China Thailand Malaysia Philippines Indonesia Australia

4

____________________• Based on Fortune 500 study in 2003• Threshold Sales - $10.83bn • Median Sales - $19.8bn

Aggregate Group Turnover

At the threshold of Fortune 500

Entry*

FY99 FY05 FY10e

International

Domestic Others

Indo Gulf

Indian Rayon

Hindalco

Grasim

Restructuring & Consolidation Growth Phase

$7.0bn

$12 -13bn

CAGR

13%

CAGR 18

-20%

$3.1bn

PBDIT - $522mnGearing – 37%

PBDIT - $1,380mnGearing – 36%

Shifting gears

The Next Phase: In the global league

5

Our strategic growth framework

India Advantage

Strengthened systems and processes

Cost competitiveness towards tapping regional potential

Size & ScaleSize & ScaleControl

Factor CostsControl

Factor Costs

Strong platform to leverage domestic market potential

Build BrandsBuild BrandsMarket share

across the value chain

Market share across the value chain

AsiaPotential

Cement, Garments, Insurance Aluminium, Copper, VSF and Carbon Black

6

Robust regional growth provide exciting opportunities

4%

3%

3%

12%

13%

15%

10%

China

4%

2%

1%

4%

3%

5%

3%

World

5%

3%

2%

7%

6%

8%

5%

Asia*

Consumption growth CAGR (1997-2004)

63%

74%

71%

40%

36%

31%

47%

2003

48%

41%

55%

33%

24%

16%

38%

1995

Asia’s share in Global Production

Cotton Textile

Sector

Semi-Conductors

Viscose Fibre

Automobiles

Copper

Aluminium

Steel

___________________________Source: WTO Statistics * Asia (Ex-China)

7

Increasing growth momentum in India – a further opportunity

________________________Source: Economic Survey, GoI & RBI Annual Reports

GDP Growth

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1966

-70

1971

-75

1976

-80

1981

-85

1986

-90

1991

-95

1996

-2000

2001

-05

2005

-07e

FY 06 – 07eForecasts: 7-8%

CAGR – 4.5%

CAGR – 5.5%CAGR – 6.3%

Strong growth platform built across key businesses

9

242

286 286319

361

410425

FY99 FY00 FY01 FY02 FY03 FY04 FY05

Hindalco Indal

Aluminium: Cost effective, multi-pronged growth towards building size

Efforts complimented by sustained improvement in efficiencies

Alumina Capacity Aluminium Capacity

CAGR: 10%

_______________________Source: Company Data

450

838 881 901

951

1,061

1,160

FY99 FY00 FY01 FY02 FY03 FY04 FY05Hindalco Indal

CAGR: 17%(‘000 TPA) (‘000 TPA)

10

600

900

1200

1500

1800

2100

2400

0 25 50 75 100

Asian Majors

4,113

3,522

2,454

1,567

1,319

660805

640 530425

Hind

alco

Alba

Duba

l

Chalc

o

Rio

Tint

o

BHP

Billit

on

Hydr

o

RusA

l

Alca

n

Alco

a

Aluminium Business Today: Amongst largest in Asia and a low cost producer globally

Global Aluminium Producers

________________Source: CRU

______________________________________________Source: CRU Aluminium Production Costs 2004

(US$/Ton)

Aluminium Cash Costs

(% of Production)

Hindalco Average Metal Cash Cost

In the first quartile of global costs even in Alumina

(‘000 TPA)

11

… With significant competitive strengths

Harnessing domestic resources

__________________________________Source: Ministry of Mines, Govt. of India

Hindalco’s Alumina RefineryQuality Bauxite

R

RUtkal Alumina (Proposed)

Coal DepositsR

RR

R

Bauxite for AluminaIndia hosts 5% of global reservesResources estimated at 2,300 mmtSuperior quality resulting in low alumina costs40% of India’s reserves within 400 Kmsradius of our existing operations

Power for SmeltingIndian coal reserves is 3rd largest globally Proven reserves of 92 bn MT Resources exceed 246 bn MT, about 8% of global resourcesPrivatisation of coal mines started

Labour: One of the cheapest in the world

Proximity to growth markets of Asia

12

345410

78

325

325 1,138

Renukoot

Renukoot + Ind

alBrow

nfield

MOU-Orissa*

MOU-Jhark

hand* Total

660

1120

690

825

1500 4,135

Renukoot

Renukoot +

IndalBrownfie

lds

Utkal

MOU-Orissa*

Total

________________________________________________________________________________________* MOUs signed with the Govt. of Orissa and Jharkhand in 2005. Projects are subject to necessary approvalsSource: Company Data

Aluminium: Growth plans for the future

Alumina capacity to grow 3.7 times

Metal capacity to grow 2.8 times

(‘000 TPA) (‘000 TPA)

13

Aluminium: Aggressive growth supported by exciting regional opportunities

-6000

-4000

-2000

0

2000

4000

6000As

ia*

W E

urop

e

N Am

erica

E Eu

rope

China

Midd

le Ea

st

Afric

a

Austr

alia

L Ame

rica

CIS

2004 2009

Market balance in Aluminium

(‘000 TPA)

_______________Source: CRU* Asia excluded China and Middle East

_______________Source: Company Data

200

400

600

800

1000

FY91FY93

FY95FY97

FY99FY01

FY03FY05

CAGR - 4%

(‘000 TPA)

CAGR - 8 %

Domestic markets on a higher growth plane

14

Copper: Five fold growth in 5 years

100

150 150

250 250

500

FY01

FY02

FY03

FY04

FY05

FY06

E

(‘000 TPA)

CAGR: 38%

Copper Smelter Capacity

_______________________Source: Company Data

Amongst the fastest growing smelters in the World

15

Copper:Global sized and globally competitive now

__________________________________________Source: CRU Copper Smelting Costs 2003, Company Data

5

10

15

20

25

30

35

0 1000 2000 3000 4000 5000 6000 7000Cumulative Production ('000MT)

Dahej At 250 KT

DahejAt 500 KT

(US¢/lb)

Copper Cash Costs1582

937870 870

645 644563 549 500

Hind

alco

Anglo

Ameri

can

Mitsu

bishi

Xstra

ta

Gmex

icoBHP

Rio

Phelp

sDod

ge

Code

lcoGlobal Top-10 Producers

________________Source: CRU

(‘000 TPA)

16

Copper:Backward integration efforts starting to pay off

Nifty mines (Western Australia)Open pit produces cathode (SX/EW)Underground mine being developed Commissioning likely by Aug’05To produce 60 KTPA Cu-in-ConcentrateEstimated reserves of 800 KT Cu

Mt. Gordon (Queensland State)Cathode facility converted into concentrate productionResidual mine life of 4 years45 KTPA of Cu-in-ConcentrateCaptive shipment since Aug’04

Nifty

Mt. Gordon

17

Copper : To focus on value extraction …

In the global league already

Significant competitive advantages By-product value addition potential

Locational advantages

Possible adverse macro economic developments behind us

Cyclical improvement in TcRc, from historic lows of 2004

Strategic initiatives beginning to yield returns

Focus on improving efficiency and returns

Further increase in captive mine share – a possible investment avenue

18

… Helped by proximity to the deficit markets of Asia

______________Source: CRU

Copper SurplusCopper Deficit

240

279

509

687 164

206

3140

Western Europe

Eastern Europe

Rest of Asia

JapanChina

153India

CIS797

Copper Surplus / Deficit 2004 (In KT)

1383

1587

1687

19

Cement: Grew aggressively towards attaining size and scale

Amongst Global Top – 10

0

5

10

15

20

25

30

35

FY91

FY93

FY95

FY97

FY99

FY01

FY03

18%Grasim (standalone)23%Grasim Consolidated7%Industry

Capacity Growth CAGR – FY91 to FY05

Grasim Capacity additions (FY91-05)

42ChinaAnhui Conch845ItalyBuzzi7

28BrazilVotorantim1031IndiaGrasim 9

70JapanTaheiyo671ItalyItalcementi596GermanyHeidelberg498MexicoCemex3164SwitzerlandHolcim2175FranceLafarge1

Capacity(Mn. MT)

BaseCountryProducerRank

Amongst largest producers in the World

______________________________________________Source: CMA, Company Data

(Mn Tonnes)

20

Cement:Resulted in an enviable market strength for Grasim

hNo 1 in 7 states with 35% of demand

_________________Source : CMA

hNo 2 in 4 states with 19% of demand

hNo 3 in 6 states with 22% of demand

Leadership in key consuming markets …

B

B

B

Grey cement plants

(G) Grinding Units

White cement plants

Ready-mix Concrete

Bulk Cement Terminal

UltraTech Cement plants

(G) UltraTech Grinding

UltraTech Bulk Terminals

B

B

… With enviable distribution strengths

1st21100ALL INDIA

2nd243Export

1st3519West

1st1927South

1st2015East

2nd1536North

RankMkt. Share (%)

Grasim CombineIndustry Share (%)Region

21

GDP per capita (US$, Purchasing Power Parity)

Cem

ent C

onsu

mpt

ion

(Kg

per c

apita

)India

Philippines

China

Brazil

Thailand

Russia

Mexico

TurkeyMalaysia

US

S. Korea

Spain

Taiwan

Ireland

Japan

France

Sweden

UK

NorwayDenmark

Belgium

40,00035,00030,00025,00020,00015,00010,0005,0000

1200

1000

800

600

400

200

0

Cement: Well positioned to capitalise on growing domestic demand

0

20

40

60

80

100

120

140

FY92FY94

FY96FY98

FY00FY02

FY040

20

40

60

80

100

120

140

Production Per Capita Consumption

Production and Per Capita Production

(Mn Tonnes) (Kgs)

Immense long term potential

_______________Source: CMA

_____________________Source: Smith Barney

22

Cement:Profitability set to rise with improving sector fundamentals

Prices v/s Market ConcentrationCement Price Movements

_______________Source: Citigroup

_______________- Market share of top 5 Indian players in 1999 - Market share of top 5 Indian players in 2004

Source: Boston Consulting Group

130

135

140

145

150

155

160

165

170

175

Apr-0

0

Oct-0

0

Apr-0

1

Oct-0

1

Apr-0

2

Oct-0

2

Apr-0

3

Oct-0

3

Apr-0

4

Oct-0

4

Apr-0

5

(Rs/ 50 kg bag)

Market share of top 5 players

40

60

80

100

120

0 20 40 60 80 100

China

Cement Price US$/T (2003)

Brazil

Spain Italy

South KoreaUS

Mexico

India

23

Viscose Staple Fibre (VSF): Built size and scale in a profitable niche segment

VSF Production (Indexed)

Lenzing19%

Others14%

Grasim12%

Formosa7%

Equi4%

Chinese Producers

(Fragmented)35% Overseas units of

the Group

AVB Group Total 21%

Global VSF Market Share

50

75

100

125

150

175

200

FY 91

FY 93

FY 95

FY 97

FY 99

FY 01

FY 03

AVB Group

Grasim

World

___________________________Source: Company data,

___________________________Source: Fiber Organon

(Indexed)

24

VSF:Integrating upstream to control factor costs

Pulp facilities in Canada for VSFAtholville Pulp Mill (120,000 TPA) – a JV with Tembec Inc., USAStrategic investments in St.Anne Nackawic Pulp Mill in New Brunswick provinceLeading to 50% backward integration

Tembec St.Nackawic

31%27%

36%

31%

24% 24%20% 21%

10%

20%

30%

40%

FY00 FY01 FY02 FY03 FY04 FY05

Grasim Lenzing

Superior Operating Margins

______________________________________________Source: Company data, Lenzing annual reports

25

VSF:Sustained cash to provide growth impetus to Grasim

Significant Competitive StrengthsCost leadershipTechnology leadership

Fully Integrated operationsApplication development competencies

Well geared to capture emerging opportunities

India Textile advantage

Emerging opportunities with WTOChina: Opportunity v/s Threat

Emerging new products & applications

139127124

71

9189 89

0

40

80

120

160

FY99FY00

FY01FY02

FY03FY04

FY05

VSF Operating Earnings (PBIDT)

(US $ mn)

____________________Source: Company data

Grasim: On a sustainable growth path

26

Garments: Transformed brands towards sustaining leadership…

0

20

40

60

80

100

120

FY00

FY01

FY02

FY03

FY04

FY05

Louis Philippe Van Heusen Allen Solly Peter England Others

57

73 69

110

7687

Brand Revenues

Shirting Wardrobe Lifestyle

Successful Migration

_________________________________Source: Company data

(US$ mn)

27

Menswear market size to reach

US$3.3bn by 2010

Branded apparels market to grow 15% annually

Women’s wear & Denim to achieve

critical mass

__________________Source: KSA Technopack, IRS, Market Sources

… In a promising high growth sector

__________________Source: KSA Technopack, IRS, Market Sources

Indian Readymade Garments Market (1994-2006)

Mid Price Segment

$ 220 Mn

1994 1998 2002 2006

Mid Price Segment

Premium Segment

Super PremiumSegment

ProductWardrobe Lifestyle

Wardrobe

Lifestyle

Wardrobe

Lifestyle

$ 450 Mn

$ 800 Mn

$1,330 Mn

Branded apparels market to grow 15% annually

28

Pru-ICICI31%

Bajaj Allianz16%

Birla Sunlife12%

HDFC9%

SBI9%

Kotak7%

Other 7 Private

Players 16%

Insurance: Carving a profitable niche …

Several first mover advantages to its credit

First to offer Unit Linked Products (ULIPs)First to start Multi-Channel distributionFirst to distribute through BancassuranceFirst to start Group Insurance

0

20

40

60

80

100

120

140

1st Qtr 2nd Qtr 3rd Qtr 4th QtrFY02 FY03 FY04 FY05 FY06

_________________________________Source: Company data

Market share data from IRDA

(US$ mn)

Annualised premium equivalent

29

… In a new sector offering immense long term potential

2.0 2.1

2.6 2.93.5

4.6 4.8 5.05.8

7.48.2 8.6

10.2

0

2

4

6

8

10

12

ChinaThailan

dInd

iaMala

ysia

Sinapore USA

World Avg.

Australi

aAsia

AvgTaiw

anKore

aJap

an UK

(%)

Life Insurance premium as % of GDP (2002)

__________________* Source: Swiss Re, Kotak Research

05

101520253035404550

1990 1993 1996 1999 20022005E2008E2011E

India Premium Market Size(US$ Bn)

_____________________Source: Swiss Re

Penetration levels to rise to 4.5%; Premium size to triple to $46 billion by 2013*

30

Indian Rayon: Building a Balanced Portfolio

Growth to be driven by new economy business in the future

53%

45%

31%27%

23%

5%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY00 FY01 FY02 FY03 FY04 FY05

IT Services / BPO

Life Insurance

Garments

Traditional Businesses

New businesses as % oftotal sales

(Rs. Crores)

31

Indo Gulf: Benefiting from changing policy environment

Significant competitive strengthsAmongst lowest cost urea producersStrategically locatedStrong brand equityBest equipped to face de-regulated market conditions

Well poised to capture growth in the fertiliser sector

Significant financial strengthPursuing organic growth opportunitiesPotential to grow inorganic 0

200

400

600

800

1000

1200

1400

1600

2004

2005e

2006e

2007e

2008e

2009e

2010e

Brownfield Plans*

Debottlenecking*

_____________________* Awaiting approvals from Govt. of India

Urea Production Capacity

(‘000 TPA)

32

Value Based Management implemented successfully EVA – An understood common metric now, at all levelsOn the success path to result in:

Business ownership and empowermentBetter use of existing capital and efficient capital planning

Business Review Councils (BRC) set upCross business, multi functional teams to leverage group expertiseReviews strategic progress and operating performance

Capital Request Evaluation Committee (CREC) set upStandardised capital allocation processCross functional, value focused evaluation of capital proposals

Group-wide systems to support aggressive growth

33

Group stock valuations looks attractive…

5x

8x10x12x

15x

-200400600800

1,0001,2001,4001,6001,800

Apr-92

Feb-93Nov-9

3Aug-

94Apr-

95Jan

-96Aug-

96May-

97Dec-9

7Sep-

98May-

99Dec-9

9Aug-

00Apr-

01Dec-0

1Jul

-02Mar-

03Oct-0

3Jun

-04Feb-05

(Rs.)

5x

8x

10x

12x

15x

-

400

800

1,200

1,600

2,000

2,400

Apr-92

Apr-93

Apr-94

Apr-95

Apr-96

Apr-97

Apr-98

Apr-99

Apr-00

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

(Rs.)

Grasim Forward PER Band

Hindalco Forward PER Band

_____________________Source: Bloomerg Data / Consensus Estimates

34

… And yet to reflect the changing growth profile

137

644

2,750

2,510

(US$mn)

Market Cap.

Current Valuations (Based on FY06 consensus estimates)

Annualisedreturns

12.2Sensex(7635)

43.6*

55.1

10.0

36.3

(5 yr CAGR)

2.56.57.09.5Indo Gulf(Rs. 134)

1.29.912.022.1Indian Rayon(Rs. 455)

1.54.85.27.3Hindalco(Rs.1,270)

2.67.36.96.9Grasim(Rs.1,188)

PBVEV/ EBITDAPCFPER

_____________________Source: Bloomerg Data as on 29th July 2005* CAGR since listing

Thank You