Buoyant ring

Bharti Airtel’s consolidated profit after tax (before deferred tax) rose 25.2% year-on-year to Rs 1,665.25 crore in the quarter ended June 2007 (Q1) boosted by forex gains of Rs 239 crore. Consolidated revenues grew 9.5% to Rs 5,905 crore.

Mobile revenues, three-fourth of consolidated revenues, provided the boost, thanks to increase in subscriber base, which increased by 5.5 million in Q1 to 42.7 million.

Notably, Bharti has been able to increase its mobile market share to 23.5% at the end of Q1 from 22.9% as at end-March 2007 and 21.1% at end-June 2007.

The growth in subscriber numbers in Q1 was helped by the launch of Rs 495 lifetime validity scheme and network expansion. Bharti now covers 62% of India’s population, up from 59% in Q4 FY 07 and seems on track to achieve the 70% level by 2007-08.

However, the average monthly billing per user declined to Rs 390 in Q1 (against Rs 406) as Bharti earned 4.7% lower for every minute used, while the average minutes per user improved marginally (by 0.6%) to 478 minutes. All the same, the operating profit of the mobile business grew faster (by 15%), helped by the scale advantage.

In the broadband and telephone services business, subscriber base touched 19.7 million, while the average monthly billing per subscriber crawled to Rs 1,121 (against Rs 1,112).

However, profit margin improved sharply by 370 basis points to 32.2% as Bharti was able to spread the fixed costs among the increased subscribers base.

The party pooper was the drop in tariffs, which affected the long-distance calling business (14% of revenues), where revenues declined by 9% and profits by 13%. That, along with a dip in margins impacted profits of the enterprise business.

Overall, profit margin fell by just 10 basis points to 41.43%, even as SG&A expenses rose faster, by 21.4%.

Bharti, though, maintains that the higher SG&A is just a blip and that these expenses are likely to drop in future.

Going forward, the company’s growth prospects continue to be good. The stock, now at Rs 925.25 (up 21% since April 1st 2007), quotes at a PE of 35 based on its trailing 12 months earnings and, can be considered at declines.

All-round show

For Reliance Capital, which has interest across financial services (mutual fund, life & general insurance, retail broking & distribution, consumer finance, investments, etc), consolidated total income in Q1 2007-08 at Rs 1,111.40 crore reflects a jump of 212% as compared to Q1 the previous year.

The net profit at Rs 324.90 crore was up 187% despite a one-time provision of Rs 70.10 crore.

That’s because it was also helped by a sharp rise in profit from sale of investments, which is reflected in the 291% rise in finance and investment division revenues at Rs 517.90 crore.

Notably, all businesses contributed to top-line growth. Broking and distribution division grew on account of competitive pricing and a wide network.

The company offers broking services through the sale of prepaid cards, which it receives as acquisition fee and later a regular fee is charged on renewal basis. Reliance Money is rapidly expanding its reach and had a distribution franchisee network of 4,000 outlets spread across 700 towns/cities; average daily trading volume of Rs 600 crore.

The gross written premium in the general insurance business stood at Rs 529 crore, up by 241%, whereas profit before tax grew 34% to Rs 18 crore.

The premium growth was primarily driven by increased contribution of motor and health insurance products that together constitute 70% (against 57% in March 2007) of total premium written.

Reliance Capital has also strengthened its marketing base taking the number of intermediaries to 36,463 in Q1 and branches to 85. The proportion of unit linked plans constitutes around 96% of the premium written in Q1 FY08.

Since most of these businesses are in the growth phases, expenses tend to be higher. In fact, the company has ramped up its workforce across these businesses, which is one reason for the tripling of staff costs.

But, these businesses are expected to gradually create value for shareholders, as was seen in the case of ICICI Bank.

For Reliance Capital, revenues from the asset management (mutual fund) division at Rs 66.60 crore grew 63%, helped by a 29% rise in the assets under management (AUM) in Q1 to Rs 59,800 crore.

Reliance’s AUMs have grown faster than competition. Its latest fund offering (Reliance Equity Advantage) also collected around Rs 2,700 crore (concluded on July 10 2007) and should only add to the kitty.

No wonder, Reliance Mutual fund has maintained its number one position in terms of AUMs with market share of 15%.

Going ahead, a vast network with a basket of products will help the company to tap higher market share. Also, Reliance Money has plans of rolling out consumer financing business by Q2 2007-08 (now rolled out selectively in some cities) and is targeting to disburse Rs 5,000 crore in 2007-08 in the form of various consumer as well as SME loans.

At Rs 1,293, considering the potential in the businesses and the aggressive growth plans, it may be worth considering at declines.