Think, Lead and Strategize Like Kumar Mangalam Birla by Rajiv Agarwal

Author:Rajiv Agarwal [Agarwal, Rajiv]
Language: eng
Format: epub
Publisher: Rupa Publication
Published: 2019-05-04T18:30:00+00:00

LEARNINGS FROM THE IDEA–VODAFONE MERGER

From AT&T to the Tata Group to Vodafone, Kumar Mangalam’s stride into the telecom sector has been in alliance with reputed players in the space right from the word go. He realized the importance of joining hands with an experienced organization.

The telecom sector witnessed tough competition, with many service providers slashing rates to unbelievably low prices. Idea hit troubled waters rather soon. But Kumar Mangalam was eager to remain in the telecom space and not sell out. He had categorically stated on many occasions that Idea was not for sale. However, he was neither short-sighted nor impractical. He realized that Idea’s survival depended on its ability to make investments.

In the financial year 2016–17, Idea’s net debt-to-EBITDA ratio (the ratio of debt to the company’s total earnings before interest, taxes, depreciation and amortization) was nearly six times, based on FY17 earnings. Estimates stated that Idea would need to invest around 2–3 billion over the next couple of years just to survive. The best way to do this, decided Kumar Mangalam, was to merge with another player. Relying on the other Aditya Birla Group companies for funds would have constrained the growth and finances of the business58, but partnering with a powerful player would create shareholder value and improve the chances of seeing through the difficulties together.

Kumar Mangalam’s decision to merge demonstrates tremendous maturity in business thinking, which values survival over ego or prestige. It indicates the courage to risk exploring an industry that promises potential, despite having faced roadblocks.

This strategy of entering into joint ventures to explore new markets has proven to be relatively risk-averse for the Aditya Birla Group. It has also helped the group save capital erosion and achieve greater profitability.

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