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Astra seeks balance in multisector operations
Never put all your eggs in one basket
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Never put all your eggs in one basket.
Although the advice may sound cliché for many investors, publicly listed diversified conglomerate PT Astra International (ASII) is among those that have proved its veracity, especially in times of economic turbulence.
Established in 1957, ASII currently operates in seven business lines, namely automotive; financial services; heavy equipment and mining; agribusiness; infrastructure and logistics; information technology; and property.
While the automotive sector has traditionally dominated its revenue contribution, the conglomerate is now obsessed with maintaining the contributions of each of its subsidiaries in balanced proportion.
“The 1998 financial crisis gave us a lesson that business must be carried out in a prudent manner,” ASII president director Prijono Sugiarto told a media briefing as a part of his firm’s 60th anniversary commemoration in Jakarta over the weekend.
After the crisis, the automotive sector recovered relatively faster compared to other industries, causing it to dominate ASII’s business lines’ contributions by around 90 percent during the period of 2001 to 2002, Prijono recalled.
As part of the plan to develop sustainable business operations, the firm has started since last year to invest in alternative sectors, such as property, ports, power plants and construction, taking advantage of the government’s plan to spur the economy through massive infrastructure projects.
The firm, which started its business as a soft drinks distributor with only four employees, launched last year its seventh business line, Astra Property, amid pressure on its commodities-related units as a result of plunging commodity prices.
“It’s why we have business lines that can fill in each other so that we can expect more stable revenues for the group,” Astra Property chief David Iman Santosa said during the launch of the company in October last year.
“Astra’s decision to enter the sector is really for the long term.”
On Friday, Prijono proudly referred to the newborn business line as “the future of Astra”.
As of September last year, the automotive business contributed around 53 percent of the firm’s total net profits. Going forward, the firm aims to maintain the sector’s contribution at around 50 percent, followed by financial services at 15 percent, heavy equipment and mining at 15 percent and agribusiness and other business lines at 10 percent.
“That’s one of fundamental changes in Astra. We are now far more balanced than we were several years ago,” Prijono said.
The company’s strategy to invest in multiple sectors has allowed it to stand strong during other difficult moments.
In 2015, when Indonesia’s economic growth hit its lowest level since the 2009 financial crisis, ASII’s information and technology unit, despite its small size, was the company’s only subsidiary that could book positive growth.
Last year, while ASII’s banking, heavy equipment and mining businesses were hit hard by plunging commodity prices, the recovery in its automotive unit helped the conglomerate to put a brake on its sliding net profits.
Prijono, however, made it clear that his firm would never leave the automotive sector given the fact that four-wheeled vehicle penetration in Indonesia is still relatively low compared to its peers.
Latest statistics show that among 1,000 Indonesians only 80 have cars, lower than Thailand, which has 200 car owners for every 1,000 people, or other developed countries whose figures stand between 600 and 700.
“We will still tap the potential of the sector. However, it also has some limitations, including its heavy dependence on interest rates and income per capita,” Prijono said, explaining why Astra was exploring other opportunities, including infrastructure projects.
The firm, whose market capitalization was the fourth-biggest on the Indonesia Stock Exchange (IDX) as of Friday, plans to allocate Rp 15 trillion (US$1.1 billion) of capital expenditure (capex) sourced from internal reserves this year, mainly to invest in subsidiary PT United Tractors, a heavy equipment distributor, and various infrastructure projects.
