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Kumar Mangalam Birla, shared his reflections as the year 2022 begins to unfold and also spoke on the decade to come along.
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The Chairman of the Aditya Birla Group, Kumar Mangalam Birla, shared his reflections as the year 2022 begins to unfold and also spoke on the decade to come along with the progress made so far, amid the Covid-19 pandemic.
According to Birla, the coming decade will be one of innovation. He also wrote about the supply chains getting back on track and said the “speed and magnitude of the global bounce back has surprised everyone.”
Stressing that successful businesses are the ones which deliver tangible profits, Birla said that “trusty old concepts” like gross margins and cash flows will matter eventually even while valuations jump.
His comments come in the backdrop of high valuations being enjoyed by businesses amid a liquidity glut wherein firms like Zomato and Paytm have successfully raised money from the public despite not reporting profits.
Birla said in the long run, sustainable and successful businesses are those that generate tangible profits, prosperity, livelihoods quarter after quarter. “Valuation and business longevity will automatically follow”.
“Ultimately, my own view is that at some stage unit economics will have to matter. And trusty old concepts like cash flows and gross margins will guide behaviour and actions,” he said.
In his New Year message to employees, Birla acknowledged a shift in business where enterprises have come to creating a need for consumers which never existed rather than delivering goods and services helping one meet a need, and cited the example of a 10-minute delivery app to support his observation.
In the section titled ‘Valuations: Sanity over vanity’, Birla said competition for investment opportunities and the Fear Of Missing Out (FOMO) have driven up valuations of many fledgling companies to “stratospheric levels”.
He said the large waves of cheap capital will eventually erode entry barriers faced by entrepreneurs and once a business becomes successful and starts delivering profits, valuation and business longevity will follow automatically.
Sharing his thoughts about societal changes, Birla said hierarchies have ceased to be so important in the face of a 20-year-old building a billion-dollar business or a 50-year-old building a company in a new space.
A generation of entrepreneurs are now taking advantage of the 1991 economic reforms, and with the twin balance sheet problem of stressed loans and over-leveraged corporates behind us, the next decade will be one of a surge in investments, Birla said, terming it as a “capital mahotsav” which awaits India.
The private sector is firing on the twin engines of conventional and the new-economy, Birla said, calling this as a ‘double engine growth’.
He, however, stressed that ‘sunrise sectors’ should be a wider phrase which should also include conventional industries like cement, steel, power and auto.
The industrialist said “recent experience” has taught us not to declare victory or even the beginning of the end but hoped that the pandemic will become a far less virulent irritant in our daily lives in the new year.
There is a renewed understanding on the importance of supply chains. While efficiency wins in the short term, resilience translates to value in the long term, he said.