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Insurance unit propels Nuvo profits

Insurance unit propels Nuvo profits
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First Published: Sun, Feb 13 2011. 09 20 PM IST
Updated: Sun, Feb 13 2011. 09 20 PM IST
Aditya Birla Nuvo Ltd is an incubator of sorts for the Kumar Mangalam Birla group. The group grows several unrelated businesses till they reach scale and then hives them off as separate listed entities, like in the case of Idea Cellular Ltd.
The big question from Nuvo’s December quarter results is whether the insurance business, which accounts for one-third of the firm’s revenue, has turned around paving the way for listing the financial services arm.
It is no secret that the group wants to hive off the financial services unit. However, regulations are stuck at various places in the Reserve Bank of India and Parliament. Also, while brokerages have assigned fat valuations to private insurers, a few are making profits.
Still, Nuvo’s insurance unit—Birla Sun Life Insurance Co. Ltd—has reported profits for the last two quarters. For the three months ended December, this segment registered a net profit of Rs 127 crore compared with a Rs 143 crore loss a year ago.
This swing accounted for 90% of the Rs 288 crore increase in earnings before interest and taxation (Ebit), the rest being made by up by the garments and IT-enabled services.
This also propelled the profit after tax to rise 34-fold to Rs 275 crore despite a weak showing by businesses such as carbon black, rayon and fertilizers. It also covered the decrease in Ebit for other financial services units.
However, it might be a tad early to conclude that the insurance business has turned the corner. True, Nuvo has cut costs as seen by the 3.2 percentage points improvement in the operating expenses ratio to 23.2% for the nine months ended December over a year ago. But new business premia are shrinking. A September ruling by the insurance regulator to curb mis-selling in the industry is hurting and the outlook is hazy.
Investors cheered the good results driving the stock 3.8% up on Friday. So far this year, it has beaten the broader market, too. But how the firm sustains its profits from the insurance business—which brokers value at 40-50% of Nuvo’s market price—will play a key role in determining further upside.
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First Published: Sun, Feb 13 2011. 09 20 PM IST