Kumar Mangalam Birla was upset. The news he had received in late September 2010 from the 18th Floor of the Indiabulls Centre in Mumbai was distinctly downbeat. The Mumbai-headquartered Aditya Birla Money had lost Rs. 103 crore on its Options Maxima strategy.
Babuji, as Kumar Mangalam is called inside the group, had two choices. He could let the loss trickle down to the investors, or he could pay investors back.
Apart from high-net worth individuals, the word was out that the scheme that had lost money also had some big names from the financial services industry, including a CEO of one of the largest private sector banks in the country.
A spokesperson of Birla said that these rumours are baseless and refused to talk on this due to the client confidentiality clause with their investors. Birla bit the bullet and Aditya Birla Nuvo (ABN), the parent company of Aditya Birla Money, paid the investors. The loss was recorded on ABN’s books.
Missing the Beat
This wasn’t in the Aditya Birla Money script. In 2008, Kumar Mangalam Birla had told Economic Times that he should be either in the top three slots in every business or he should be very profitable. The financial business has three main divisions: Insurance, mutual funds and broking.
Nuvo also plans to infuse Rs. 300 crore into Aditya Birla Finance, a non-banking financial company (NBFC), to increase its net worth and expansion plans. The Aditya Birla group (Birla group) wants to enter the banking sector through this NBFC. And perhaps this too must have played a part in investor’s losses being made good. Such an event reflects badly on a group seeking a banking license.
These losses are significant for Aditya Birla Money.
The firm had posted an income of Rs. 38 crore for the July-September quarter of the year ending March 2011 and a net profit of Rs. 1.5 crore. For March 2010, Aditya Birla Money had a total income of Rs. 112.37 crore with net profits of Rs. 12.68 crore.
The Rs. 103 crore hit that ABN has taken is equivalent to more than two years of Aditya Birla Money’s profits. Incurring such a large capital loss in a financially conservative Aditya Birla Group is almost akin to getting hit for a last ball six in a match against Pakistan.
Ajay Srinivasan, who heads Birla’s financial services foray, and his second-in-command, Pankaj Razdan, found out the true extent of Kumar Birla’s feelings. Soon after the loss, they tried to meet him to explain what had happened. Word has it that Birla didn’t grant them an audience. Instead, they had to meet Santrupt Mishra, the director for group HR for a major dressing down, says an insider.
The jury is now out on whether this setback will lead to more shake-up inside Birla’s financial arm. Insiders say that even before this current setback, Kumar Birla had begun making senior-level reshuffles across various parts of his financial empire, preferring to replace the current incumbents with old Birla loyalists.
The Beginning
In 2007, Birla handpicked Ajay Srinivasan, who was then with Prudential Corporation Asia in Singapore, to head the financial businesses of the Aditya Birla Group. Since 2002, Birla’s financial services business had lost momentum. In 2002, its star fund manager Bharat Shah had moved on to ASK Raymond James and charge for all of financial services went to S.K. Mitra. Then on July 7, 2007, S.K. Mitra was told that his performance was not up to the mark and he was given a hefty severance pack and asked to move on. Birla finance business employees say that before Mitra was out of the building, they were told that Ajay Srinivasan was taking charge of the financial services group.
When Srinivasan took over in 2007, he had to build a business that was losing market share both in the insurance as well as the asset management side. Insurance had a market share of 5 percent and the assets under management (AUM) of Birla Sun Life Mutual Fund stood at Rs. 23,000 crore, making it the seventh largest mutual fund. There was no broking arm and Srinivasan felt that this was one piece that was lacking, so he had to scout for an existing company that could give him access to this business. Since Kumar Birla wanted to be among the top three players in these segments, Srinivasan had a very tough task at hand.
Srinivasan and his second-in-command Pankaj Razdan brought new vigour to the operations, primarily by introducing the go-getting culture of the ICICI group. Insiders say that close to 70 people who had at some point worked with the ICICI group joined Srinivasan and Razdan’s team. Their dynamism and aggression didn’t quite go down well with many of the old-timers inside the Birla finance business though.
To be fair, Srinivasan did get things moving. Between 2008 and 2010, the insurance business has grown by 15 percent annually. It generated profits of Rs. 20 crore for the first time for the July-September quarter of the year ending March 2011, but new business premium has fallen by 12 percent. Chances are that growth may not come through for the year ending March 2011, as the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) have changed the way insurance schemes or unit-linked insurance plans (ULIPS) work — and that will dent profitability severely.
The revenue of the financial services business has increased by 45 percent in the last one year. Yet, Srinivasan isn’t anywhere close to achieving Birla’s targets. Birla hasn’t reached the top three positions in any of the businesses and profitability isn’t very robust either. Also, close to 80 percent of the assets of the Birla Mutual Fund are related to liquid, cash or debt-related funds. These schemes earn a meagre 15 basis points (0.15 percent) as asset management fees. Other funds that have substantial assets in equity earn around 1 percent as management fees.
So, to get a piece of the equity action, in September 2008 Srinivasan recruited Vivek Kanwar from ICICI Bank to head Birla Sun Life Distribution. Kanwar had been a general manager at ICICI Bank, with the retail liability group, and his responsibilities included handling high net worth individuals and institutional clients. In September 2009, Kanwar became the head of Aditya Birla Money, the broking arm of Birla Financials.
Enter Kanwar
The Strategy Unravels
(This story appears in the 03 December, 2010 issue of Forbes India. To visit our Archives, click here.)
Markets are full of risks, nothing can be done if it falls in opposite direction. People who are ready to take risk only should enter market...
on Jun 7, 2011If people there in Birla are not efficient enough, they dont have any rights to blame other companies like ICICI. Just go and see the culture there and try to imbibe that in your own orgn. before adopting any option strategy, think before if u have required knowledge on that. Moreover you people cannot compare yourself with ICICI in broking line. N pls hire good professionals who can handle accounts well. People at ICICI have such good risk management system wherein nobody will get extra debit n all. So folks in ABML dont blame others for your set of mistakes. Atleast have the guts to take things on your shoulders.
on May 31, 2011Birla Money staff oparated my share account without my consent.
on Jan 27, 2011Well people who are retired should not fall into traps even from big firms as that shoots up their stress level.Investment in good shares for long term yields any way 15% to 20% p.a. and one needs no mutual funds or advisors.A crash in the market should be used to buy further and a boom should be used to book part profit. An allocation of 100 minus the age should be made for equities as world over markets are volatile and managed by young hot blood that looks for quick returns.Mr.Ram Prasad has to fully blame himself as Aditya Birla group is no guarantee for risk taken however it was presented. The more we complicate, the more we fall. Does any one in the markets understand this inclg. Mr.K.Birla who is a CA himself.
on Nov 25, 2010Aditya Brila Money the business team is having a right intent & but team which they acquired from Appollo Sindhoori is highly inefficient , incapable, bureaucratic & will not allow business to grow any further.
on Nov 25, 2010Granted the advice from Aditya Birla was risky, but my feeling is Mr. Ramprasad has only himself to blame. If you expect high returns, you should be ready for high risks too! And, whatever happened to the concept of "Caveat Emptor"?
on Nov 24, 2010This is just a glimpse of things at Aditya Birla. Being an employee, we know its bigger games and oldies like us have to suffer due to those so called aggressive Management..
on Nov 24, 2010Working with the Aditya Birla Group myself, I should say Aditya Birla Money is not the only company where negative stuff as this, is happening. There is much more happening across and it is pretty sad....
on Nov 23, 2010The financial services team does not match with DNA of Aditya Birla Group value system. KMB should investigate books of account and money spent by its financial services wing in the name of new office and infrastructure. I am sure he will find a bigger scam than this. He should also investigate money spent on marketing and promotion....KMB has got wrong people who is offering some quick cosmetic performance and making ABG value system weak from inside..... In fact govt should also investigate books of account.
on Nov 27, 2010I cmpltly agree to this...KMB shud luk into the books of Financial Services...he will defntly get the bigger picture n idea of scam within the ABFS grup...its high time now..
on Nov 28, 2010Birla ji, by the way are famous for recruiting people on senior position from their village pilani irrespective of their skills.. All the other birla group had been sucked off or about to sucked off.. The last hope is Aditya Birla, but..?
on Mar 22, 2019