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Aditya Birla Nuvo continues to chug along

Aditya Birla Nuvo continues to chug along
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First Published: Mon, Aug 15 2011. 10 16 PM IST
Updated: Mon, Aug 15 2011. 10 16 PM IST
Aditya Birla Nuvo Ltd’s financial services business continued to drive profits in the June quarter as well. The company’s net profit grew 70% over a year ago.
Manufacturing, too, was good for the firm last quarter, with a good showing from textiles and agri-business. However, that was not without riders, as operating margins in this segment were crimped due to rising input costs.
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The earnings before interest and tax (Ebit) margin fell 2 percentage points, against a year ago. The telecom business—Aditya Birla Nuvo has a 25.4% share in IdeaCellular Ltd—also did well during the quarter as the price war seems to be ending in that industry. But the financial services business continues to hog the limelight, contributing to one-third of the firm’s Ebit.
Still, all is not well in this business. Asset management and broking continued to disappoint. The more worrying trend is the tepid growth in revenue. Segment revenue grew just 4.3% from a year ago. The insurance business revenue grew at the same rate. New business premia continued to fall because of new industry rules to curb mis-selling of the popular unit-linked insurance plans. In the three months ended June, growth of new premia slipped 37% from a year ago. Still, with eight out of every 10 customers returning to renew old policies, the firm’s life insurance business continued to deliver on profits; Ebit grew 16 times.
The question remains how far Aditya Birla Nuvo will be able to squeeze profits from this segment if revenue growth dries up. Remember that most brokerages assign half the company’s valuations to the life insurance business.
The management had earlier indicated that growth will resume from the middle of this year. So far that doesn’t seem to be happening.
According to figures from the Insurance Regulatory and Development Authority, private life insurers’ collective premia slipped one-third in June from a year ago. The scaling up of this business will continue to elude investors for some more time to come. For now, though, they seem content with the company’s profitability as evinced by the continued outperformance of the stock against the broader market.
Graphics by: Ahmed Raza Khan/Mint
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First Published: Mon, Aug 15 2011. 10 16 PM IST