On the eve of a $11-billion internal merger of Aditya Birla’s two holding companies Grasim and AB Nuvo, Kumar Mangalam Birla told ET’s Devina Sengupta, Deepali Gupta, and Arijit Burman that the Reliance Jio threat to telecom arm Idea Cellular was overcasting a positive for the rest of the group. The key leverage from the merger will be for its financial services business that can avail of a strong balance sheet of a large, persified group that is banking on India’s national growth. Edited excerpts of the interview follow:

ET: When and how did this idea come together?

It is something we have talking about in the last couple of years but the action has been hotted up in the last 3-4 weeks. These things just fall into place. We all thought this was the right time. The fashion business had been spun off, carbon black had been spun off. Those were very value accretive moves. There has been a pattern to it, it is not that out of the blue.

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Bankers have also been talking about it.

ET: What is the rationale behind this idea?

A:You are putting together an entity that has very interesting mix of businesses. It is play on the India growth story and if you believe in the India growth story, then this is a company that you have to have in your radar. It is very unusual to have company with persified set of business and interesting mix of 30% services and 70% revenues from manufacturing. Exposure that Grasim will give to financial services and access to very large cash generating business like cement. It seems win-win for all.

ET: Why create a conglomerate when the market tends to discount it compared with inpidually listed companies?

A: So we are not creating conglomerate out of pure play company. We are putting together businesses some of which have been generating cash, which are higher growth so there seems to be a complementarity. BFI from Nuvo and VSF from Grasim both fall under the broad category of textiles. We have caustic soda in Nuvo and larger caustic play in Grasim and putting them together makes sense.

There was limitation on growth prospects of Nuvo and at the same times some of the businesses of Grasim are generating cash but more stable business with more GDP kind of growth rate. So Grasim obviously gets more exposure to at least the financial services business if not the telecom, which is much faster in growth.

It makes cash more fungible, but the first call for the pot of cash would be for Grasim’s own businesses. ABFSG will have own growth plans and so will Idea.

ET: The launch has come close to a potential telecom service launch by Jio, is this move meant to beef up Idea Cellular?

A:This is not the intent behind this transaction although it may come close to the launch of Jio. That is just coincidence.

Idea is overcasting itself on this transaction. The aim here is not to fund Idea. Now, Idea has invested Rs 16,000 crore in last 10 years and no promoter funding. Raised that in his own steam and has ample head room to do that.

ET: Is there a specific road map for fund infusion in financial services?

A:(The plan) is more generic, but we have ambitious growth plan for the financial services business, whether it is lending book, or life insurance or AMC. This combination gives us more firepower or capability to fund more transactions.

ABFS, Life insurance and AB Money will come under this holding company getting created.

ET: When will you roll out payments bank?

A:We hope to roll out by March or April of 2017. We can capitalize on the fact that Idea has 180 million subscribers which is a sitting pool of potential clients for the payments bank.

We are the only ones with a payments bank license, with a financial services license and a telecom license. So it's more than just that, for example to make a customer more sticky.

ET: What about aspiration for a banking license?

A: That ship has sailed, frankly I don't think we are going to get a banking license to be honest. The focus now is on the lending book of the NBFC.

The payments bank won't help that, it's quite independent.

ET: Will Grasim act as an incubator for new businesses?

A: That is not necessary, it depends on the business. This entity will have the funding capability to fund a new business, but whether all businesses will be funded by Grasim I cannot say. Defense we are just studying, do not know if we will invest. The first call of funds will always be to the companies under Grasim. As of now financial services is the biggest segment for funds to flow into.

ET: If funding financial services was the key, then why not list that separately?

A: The objective is also to have the access to funding which it would have as part of the new grasim which would be very difficult otherwise.

ET: Would you need to consolidate the debt from companies like Idea Cellular?

A: We should be talking about standalone, because that is the relevant figure here. Idea will service its own debt, as would Ultratech if it had any. This company can't service debt of another operating company and it won’t have to.

ET: Was Jabong a miss for you?

A: No, we didn't see it as value accretive.

ET: Will Idea look at buying Telenor?

A:No. Idea has a story of its own, doesn't need to grow in organically.

ET: What are the concerns for the group now?

A: In a large and dynamic group there is always something that will be there. Idea is a challenge, I wouldn't say a concern, but I would say it is a big challenge. Other than that, to get a return out of the acquisition of JP (21.5 million ton cements business) is one will have to work. One has deep experience in the sector.

ET: Increasing the shareholding in group companies?

A: As we have said in the past, we are looking into increasing our stake in a creeping way.

ET: Aditya Birla Money has been in losses, what is the outlook on the turn around?

A:Aditya Birla money has an operating team that is working on turning it around. The belief is that it will take more time.

ET: There was talk that you might bring in some private equity into the food and grocery retail business – More?

A: We are always open to that. We have no deadline on it, we will always be open to it.