Unit economics will have to matter: KM Birla

While an abundance of capital and the competition for investment opportunities may have driven up valuations of many fledgling companies to stratospheric levels, Kumar Mangalam Birla believes that at some stage unit economics will have to matter and that trusty old concepts like cash flows and gross margins will guide behaviour and actions. “The only sustainable moat is the one based on intellect. Large waves of cheap capital will eventually erode all other entry barriers,” Birla says.

In an article, “My reflections’, the Aditya Birla Group chairman forsees an upsurge in capital expenditure across sectors in the coming decade in what he calls a Capex Mahotsav.

According to Birla, the private sector is firing on both conventional and the new-economy engines and investors, he says, are excited about both. Sunrise, in his view, applies to both conventional sectors like cement, steel, power and auto as also emerging areas like digital and renewable. He is convinced both hold the promise of high and sustained growth.

Birla points out that from being the invisible wheels that oiled the global economy, the nuances of supply chains and the intricacies of multi-modal optimisation have now become central to our discourse. Despite all triumphant proclamations of software eating the world, the absence of sufficient truck drivers can bring sophisticated operations to a grinding halt.

Container shortages in some parts of the world, combined with port pile ups elsewhere, reinforce the point that the physical world still matters.

The whiplash effects have called into question a decades long shift towards increasing efficiency and finely tuned precision operations that optimised operating costs but took away room for margins of error. This, Birla points out, is a stark reminder that in times of disruption, efficiency wins in the short term, but resilience translates to value in the long term.

From Source Article: financialexpress.com

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