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Kumar Mangalam Birla’s Annual Reflections: Capex fest is coming, resilience and unit-economics will be back in vogue

Chairman of the Aditya Birla Group wrote that only intellect can be a sustainable moat in the world of ‘cheap capital’

January 28, 2022 / 05:28 PM IST
Kumar Mangalam Birla wrote that “real success lies in the quiet acceptance of both (highs and lows of life)

Kumar Mangalam Birla wrote that “real success lies in the quiet acceptance of both (highs and lows of life)" in his Annnual Reflections.

The coming decade will be one of “capex mahotsav”, wrote Kumar Mangalam Birla, in his Annual Reflections for 2021-22.

“In India, a generation of entrepreneurs are now taking advantage of economic reforms as profound as those in 1991. The twin-balance sheet problem of stressed loans and over-leveraged corporates is also behind us. And therefore, the coming decade will see an upsurge in capital expenditure across many sectors,” wrote the chairman of Aditya Birla Group

He also sees the private sector achieving a “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,” he wrote.

Supply-chain unlearning

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Birla believes supply chains will change to build resilience without focussing only on efficiency. 

Supply chains were delivered a shock by the “speed and magnitude of the global bounce back”, he wrote. The whiplash effect has caused many companies to reconsider their decades-long strategies. Whiplash effect is what supply chains experience when there are massive fluctuations in consumer demand, with the highest fluctuations felt by the first node such as the raw-material supplier. 

Also read: How the supply chains crisis unfolded

“(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. 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,” he wrote.

In the short-term, this can result in nearshoring, reasonable inventory holding, multiple supplier alternatives and more sophisticated supply chain solutions, he added. 

The whiplash effect reinforces the importance of the physical world and brings to our attention how sophisticated systems can be brought to a grinding halt with the absence of truck drivers.

‘Brute power of capital’

Birla sees the “brute power of capital” driving up valuations of fledgling companies that are creating customer 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.

But he believes that, in the end, old-fashioned unit-economics and concepts such as cash flows and gross margins will be back at the wheel. Entry barriers will collapse under the “large waves of cheap capital”. “The only sustainable moat is the one based on intellect,” he wrote.

Triumph and gratitude

Birla started this year’s Annual Reflections on a triumphant note and ended it with gratitude. 

In the beginning, he praised how “collective human endeavor has generated astonishing outcomes”. “...it took us several decades to develop and then inoculate every child on the planet with the polio vaccine. But in the last 2 years, we have made great strides in a globally cooperative enterprise to reach every human being,” he wrote.

In his closing, he thanked “healthcare professionals who spent the better part of two years in PPE suits, for the municipal staff who kept civic administrations running, towards the farm and factory workers who kept Kumar Mangalam Birla the economy chugging, towards delivery partners who toiled days on bikes to keep us supplied – and many more”.

He wrote that “real success lies in the quiet acceptance of both (highs and lows of life).. Equanimity helps one make sense of the vagaries of the world with the ability to dispassionately learn from the past and plan for the future.”

In the end, borrowing from cryptosphere, he signed off with WAGM! We are all going to make it! 



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