Aditya Birla Nuvo Ltd has posted an increase in net profit for the three months ended 30 June from a year earlier, after two straight quarters of decline.
Kumar Mangalam Birla, chairman, Aditya Birla Group.
The key change in the June numbers is that the financial services business seems to be again looking up after a couple of quarters of slow earnings growth.
That division is somewhat of a favoured child within the company. At the last shareholder meeting, chairman Kumar Mangalam Birla talked about financial services creating “a new record”.
Sure, in good quarters, this division contributes about one-third of Aditya Birla Nuvo’s earnings before interest and tax (Ebit).
In the June quarter, this division contributed to 34.6% of Aditya Birla Nuvo’s Ebit, thus compensating for the poor show in some of the other divisions such as manufacturing, and fashion and lifestyle.
Varied reasons such as factory maintenance shutdown and competition from the Chinese meant that manufacturing Ebit slipped 8.8% from a year ago.
But then, perhaps reflecting the general economic slowdown, even the financial services division has its share of problems as well.
For instance, revenue grew just 1.8% from a year ago. The life insurance business hasn’t gained the kind of traction that investors had once hoped it would once the effects of the regulations introduced 18 months ago had worn off.
New business premium saw a marginal decline from a year ago. Renewal premium fell 6%, though that could be attributed to the weak trend in new premium collections in the past couple of years.
Overall, premium collections slipped about 4.4% from a year ago. Note that this is more than the 2.1% decline in the March quarter and a 6.4% growth in the first nine months of fiscal 2012.
Sure, in terms of net profit, the insurance segment has posted a slight increase. But this sluggish growth in premia could hurt the earnings a couple of years down the line and affect valuations.
The brightest star in the financial services segment for the company is undoubtedly the lending division. Its book size increased 25% quarter-on-quarter to Rs 4,250 crore, albeit on a small base. That, along with a slight rebound in the asset management business, added heft to the division’s Ebit. Aditya Birla Nuvo will have to better this performance for its stock to beat the BSE-200 index.
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