Transforming for Superior Value CreationTransforming for Superior Value Creation

Presentation by

Mr. Kumar Mangalam BirlaChairman, The Aditya Birla Group

February 2004

2

Driven by values, anchored by over 70,000 employees

The Aditya Birla Group: A Snapshot

■ Amongst three largest business groups in India

■ Leadership position across key businesses➤ Cement: Largest in India; 7th largest globally

➤ Viscose Staple Fibre: Largest in India and globally

➤ Non-ferrous Metals: India’s largest; amongst lowest cost producers globally

➤ Garments: Market leader in India

➤ Carbon Black: 5th largest globally

➤ Financial Services: India’s 2nd largest private insurance company & 4th largest asset management company

➤ Other businesses: Leadership position in several businesses globally(VFY, Chemicals, Fertilisers, Insulators)

■ Revenues of $5.5bn and net earnings of over $700mn annually

■ Market capitalization of $5.4bn with over 700,000 shareholders

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VSFCarbon BlackMetalsChemicalsAcrylic FibreCementFertilisersGarmentsInsulatorsIT / ITeSSpinningSponge IronTextileVFY

Operations Across Continents

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9

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Taking India to the World

VSFVSFCarbon Black

Carbon BlackMetalsMetalsChemicalsChemicals

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7

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9

10

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OthersOthers

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Our Value Creation Framework

Core StrengthsCore Strengths

Relentless Pursuit ofSuperior Shareholder Value

People

-ise

Institut

ionali

se

Custo

merise

Strateg

ise

Vision: To be a premium conglomerate with a clear focus at corporate level

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Core Strengths: Nurtured Over Decades

Core StrengthsCore Strengths

Relentless pursuit ofsuperior shareholder value

Peop

le-is

e

Instit u

tiona

l-ise

Cust o

mer- is

e

Strat

egis e

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Emphasis on Financial Prudence

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Streamlined Systems and Processes

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3

Corporate Governance3

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Principles of Trusteeship4

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Focus on Cost Leadership and Efficiency

5

6

Quality Consciousness6

Operational Excellence

77

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People: Providing Us the Cutting Edge

■ Contemporising talent pool➤ Instituted ‘Talent Management’ processes➤ Lateral inductions from MNCs globally

■ Capability building through development ➤ Job Evaluation for role clarity and career management➤ Gyanodaya focusing on building leadership and competencies ➤ Senior Management as Role Models & Performance Coaches

■ Systems to benefit from employee feedback➤ Organisation Health Study➤ Ombudsman Panel

■ Building meritocracy➤ Performance linked rewards (LTIC)➤ Aditya Birla Awards to encourage team and individual excellence

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People: Encouraging Results Showing Up

■ Amongst Top-20 employers in India ➤ “Best Employers in India” by Hewitt Associates & Business Today➤ “Great Places to Work in India” by Grow Talent & Business World

■ Overseas units amongst Best Employers in Asia, Thailand & Indonesia in 2002/03

Our People Vision: To be known as a people sensitive, achievement focused, development oriented organisation

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Institutionalise: Adopting Best Practices Across Companies

■ Value Based Management➤ Aimed at aligning stakeholders’ interest

! EVA: Well understood measurement metric! Under implementation by Stern Stewart & Co.! EVA based capital allocation processes

➤ Focused six pronged approach

Explicit Commitment to Value

Empowering Businesses

Building OwnershipIntense Training

Value Based Management

Encouraging journey so far

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Significant Process Reforms

EVA Based Capital Allocation Processes

2233

44

5566

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■ Implemented World Class Manufacturing (WCM)➤ Manufacturing focused excellence tool➤ Integrates several contemporary initiatives

! TPM, TQM, BPR, Six Sigma, IQRS, Value Engg.

➤ Several accolades in recent years

! Several National Awards

Institutionalise: Adopting Best Practices Across Companies (Contd.)

Teams -Ins pir a t ion

&C

ompetition

Shareholder’s Valu eShareholder’s Valu eM

inds

et,C

ultu

r e&

Passi

on

Vision,Mission, Strategy & LeadershipVision,Mission, Strategy & Leadership2

WorkEnv ironment

(5S)

2 Work

Env ironment(5S)

6Quality First:

Six Sigma/SQM &Best Practices

6Quality First:

Six Sigma/SQM &Best Practices

5Customer

Driv en:Internal and

External

5Customer

Driv en:Internal and

External

4Equipment

Effectiv eness/TPM

4Equipment

Effectiv eness/TPM

3JIT / Supply Chain

Management

3JIT / Supply Chain

Management

1Waste

(MUDA)Elimination

1Waste

(MUDA)Elimination

8Information,

Systems/BPR, Technology and

Cash Flows

8Information,

Systems/BPR, Technology and

Cash Flows

7Liaison,

Team Forceand Skill

Dev elopment

7Liaison,

Team Forceand Skill

Dev elopment

Delivery & Speed

Quality & QuantityCost

Innovations &

Productivity & PrideIntellectual Capital

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Emphasis on Superior Governance& Transparency

Group companies’ Annual Reports rated amongst

“Top-25 in Asia”

“Best in Asia” Award for Hindalco Annual Report

Hindalco wins “Best Practices Award for Managing External

Stakeholders”

Institutionalise: Adopting Best Practices Across Companies (Contd.)

20022002

20012001

20022002

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Customerise: Building Strong Brands and Moving Closer

Widely recognised and trusted brands across segments

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Strategise: Consistent Theme in a Dynamic Environment

Aimed at sustaining superior value creation across companies

Enhance Competitiveness in Traditional Businesses

Build Global Sized, focused

Businesses

Invest in Businesses of the Future

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Strategise: Significant Progress in Recent Years

Indian Rayon’s acquisition of

Madura Garments

Indian Rayon’s acquisition of PSI

Data System

Indian Rayon’s acquisition of Transworks

1998 1999 2000 2001 2002 2003

Restructuring of Metal businesses

of the Group -Hindalco acquiring

Copper

Hindalco’sacquisition of Mt Gordon mine in

Australia

Hindalco’sacquisition of Nifty Mines in Australia

Hindalco’sAcquisition of

controlling stake in Indal

Grasim IndustriesAcquisition of

Dharani Cements

Consolidation of cement

businesses of Grasim and Indian

Rayon

Grasim Industries’Acquisition of Sri Digvijay Cement

Grasim Industries’Strategic Stake in

L&T

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• Cement• VSF

• Manufacturing− VFY− Carbon Black− Insulator

• Brands: Garments• Knowledge &

Services

M.Cap: US$ 2,100 mn M.Cap:US$2,300 mn M.Cap:US$110 mnM.Cap:US$310 mn

• Metals • Fertilisers

Result: Focused Companies With Identified Growth Businesses

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Result: Superior Shareholder Returns Across Companies

____________________Source: Bloomberg

Group Market Group Market CapitalisationCapitalisation vs. vs. SensexSensex(Indexed)(Indexed)

5 Years

3 Years

1 Year

OutperformanceSensexGroup Market Capitalisation

191232

161026

4878125

Annualised Returns (%)

0

50

100

150

200

250

300

350

400

450

500

Feb-99

Aug-99

Feb-00

Aug-00

Feb-01

Aug-01

Feb-02

Aug-02

Feb-03

Aug-03

Feb-04

Sensex Group Market Capitalisation

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Transformation of Grasim ...

■ Acquiring L&T Cement (CemCo)

■ Cement restructuring & acquisitions

■ Closure of unviable Mavoor operations

■ Sale of fabric units at Gwalior

■ Exit from non-core operations: Trading & Software

■ Manpower rationalisation by almost 33%

■ Financial restructuring

Emerging as a global sized cement player

■ Cement brownfield expansions

■ Augmentation of captive thermal power

■ New VSF capacity at Kharach

Cement

Others

Cement

Others

Cement

Competitiveness

Size & Scale

Future

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… Has Helped Unlock Significant Shareholder Value

Improving fundamentals being appreciated by investors

____________________Source: Company Data

____________________Source: Bloomberg;* Since Cement Restructuring in September 1998

Rising ReturnsRising Returns

0

1000

2000

3000

4000

5000

6000

7000

FY99 FY00 FY01 FY02 FY03 FY04e5

7

9

11

13

15

17

19

Capital Employed ROCE RONW

(Rs . Crores) (%)Annualised Returns (%)

12

10

78

Sensex

36485 Years

36463 Year

1442221 Year

Outperformance Grasim

0

100

200

300

400

500

600

700

800

Sep-98

May-99

Jan-00

Sep-00

May-0

1

Jan-02

Sep-02

May-0

3

Jan-04

Grasim Sensex

Value appreciation of 572% since 1998*Value appreciation of 572% since 1998*

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31

16

13

9

65

0

5

10

15

20

25

30

35

Grasim -L&T

ACC AmbujaGroup

IndiaCements

J K Group MadrasCements

(Mn TPA)

Grasim Going Forward – A Cement Major

" No 1 in 8 states with 42% of industry v olume

" No 2 in 4 states with 15% of Industry v olume

" No 3 in 6 states with 22% of industry v olume

States whereAlliance is No 1Alliance is No 2Alliance is No 3Alliance is Below No 3

____________________Source: CMA Data

Cemco

Leadership position in key consuming markets

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Grasim Going Forward: A Strong Play on India Growth Story

■ Exciting cement outlook➤ High growth potential, fortified by thrust on infrastructure➤ Sector to grow 9-10%, backed by 6% annual GDP growth➤ Better pricing helped by improving demand-supply balance

■ Grasim well positioned ➤ Leading market share ➤ Strong brands and distribution network➤ Competitive cost structure, further strengthened by CemCo synergies

■ VSF powering Cement growth

■ Continuous management emphasis on improving returns and delivering superior value to shareholder

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Transformation of Hindalco

Creation of a Regional metals major

■ Acquisition of Copper Mines

■ Brownfield expansions in Copper Smelter

■ Acquisition of Indal: Upstream and downstream strengths

■ Copper business acquisition

■ Enhanced stake in Utkal Alumina, a majority JV with the global leader - Alcan

■ Aluminium brownfield in 1998 and 2003

■ Efficiency enhancement and cost reduction efforts

Competitiveness

Size & Scale

Future

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25

75

125

175

225

Jan-00

Apr-00

Jul-0

0Oct-

00Ja

n-01

Apr-01

Jul-0

1Oct-

01Ja

n-02

Apr-02

Jul-0

2Oct-

02Ja

n-03Apr

-03Ju

l-03

Oct-03

Jan-0

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Sensex Hindalco

Value appreciation of 78% since metal business restructuring

Hindalco: Significant Value Enhancement Since Restructuring

____________________Source: Bloomberg

Annualised Returns (%)

12

10

78

Sensex

14265 Years

14253 Year

731511 Year

Outperformance Hindalco

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Hindalco Going Forward: Leveraging Regional Growth Potential

■ Asia is the fastest growing Aluminium market in the World➤ Led by China, Asian growth to be double that of World average➤ Significant opportunities in both Metals and Alumina➤ India uniquely positioned given its quality bauxite ➤ Domestic long term outlook equally exciting

■ Copper consumption growth in Asia equally impressive➤ Asian demand-supply gap exceeds 2.5 mn tonnes per annum➤ India uniquely positioned as shortfall met through supplies from Australia

and South America

■ Hindalco well positioned to reap benefits➤ Globally competitive cost structure➤ Sustainable strategic advantages➤ Domestic dominance with growing exports presence➤ Strategic initiatives to grab emerging market opportunities

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Indian Rayon: Emphasis on New Growth Avenues

■ Madura Garments: Leadership in high growth branded apparels

■ Insurance: 2nd largest life insurance player

■ IT and BPO entry

■ Insurlator business transferred to a JV with NGK of Japan

■ Carbon Black expansions: 1999 and 2003

■ Exit from Sea Water Magnesia

■ VFY: Moving up the value chain through quality and branding

Competitiveness

Size & Scale

Future

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Value appreciation of 887% since cement restructuring

____________________Source: Company Data

____________________Source: Bloomberg* Since Cement Restructuring in September 1998

Indian Rayon: Delivering Strong Return to Shareholders

0

200

400

600

800

1000

1200

1400

1600

FY99 FY00 FY01 FY02 FY030

2

4

6

8

10

12

14

Net Worth ROACE RONW

(Rs. Crore s) (%)

Rising ReturnsRising Returns

0

200

400

600

800

1000

1200

Sep-98

Jan-9

9May

-99Sep-9

9Ja

n-00

May-00

Sep-00

Jan-0

1May

-01Sep

-01Ja

n-02

May-02

Sep-02

Jan-0

3May

-03Sep

-03Ja

n-04

IRIL Sensex

Stock Performance vs. SensexStock Performance vs. Sensex

Annualised Returns (%)

12

10

78

Sensex

24365 Years

23333 Year

561341 Year

Outperformance IRIL

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30% 30%32% 32%

34%36% 36% 37% 37%

30%30%

24%

18% 20%

15%

22%

28%

35%

42%

FY97 FY98 FY99 FY00 FY01 FY02 FY03

Trousers Shirts

Arvind Mills16%

Raymonds14%

Zodiac5%

Color Plus3%

Madura Garments

28%

Others34%

Others27%

Max New York9%

HDFC Standard

13%Birla Sunlife

13%

ICICI-Pru38%

Market Size: Rs.1,400 CroresMarket Size: Rs.1,400 Crores

Indian Rayon: Created a Strong Platform For Future Growth

Garments: Market shareGarments: Market shareLife Insurance: Market Share FY03 (%)Life Insurance: Market Share FY03 (%)

Market Share: Premium Shirts & TrousersMarket Share: Premium Shirts & Trousers

Built market share even in new businesses

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87% return since listing; Open offer was yet another value unlocking opportunity

Indo Gulf: Restructuring Helped Unlock Shareholder Value

■ Restructuring resulted in a focused fertiliser company

■ Amongst lowest cost urea producers

■ Sustainable strategic advantages➤ Locational strengths➤ Strong brand equity➤ Enviable financial strength

■ De-capping and possible decontrol provide excellent opportunity

➤ Best equipped to face the de-regulated market conditions

____________________Source: Bloomberg

Indo Gulf vs. Indo Gulf vs. SensexSensex(Indexed)(Indexed)

80

130

180

230

280

330

380

430

Mar-03

Apr-03

May-03Jun-03

Jul-03

Aug-03

Sep-03

Oct-03

Nov-03

Dec-03

Jan-04

Indo Gulf Sensex

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Widespread Recognition of Our Efforts So Far…

… But, the journey has just begun

Thank youThank you