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MANAGEMENT’S DISCUSSION AND ANALYSISMANAGEMENT DISCUSSION AND ANALYSISAditya Birla Nuvo LimitedMANAGEMENT DISCUSSION AND ANALYSISDuring 2011-12, Sensex – the benchmark indexof BSE – de-grew by 10% and S&P CNX Nifty –the benchmark index of NSE – declined by 9%.The total cash equity volumes of BSE and NSEput together de-grew by 26% to USD 695 billion;however Futures and Options (“F&O”) volumesgrew by 7% to USD 6.3 trillion. F&O segmentaccounted for 90% of the combined equityvolumes at NSE and BSE vis-a-vis 86% in2010-11. Due to increasing contribution of lowermargin F&O segment in total pie, earnings ofretail brokerage houses have been impacted. Thistrend indicates increasing speculative activitiesrather than retail participation. Retail participationin cash equity segment reduced to 51%compared to 56% in the previous year. Thecombined commodities volumes at MCX andNCDEX rose by 55% to USD 3.5 trillion. [Source:Bombay Stock Exchange Ltd. ("BSE"), National StockExchange of India Ltd. ("NSE"), Multi CommodityExchange of India Ltd. ("MCX"), National Commodity& Derivatives Exchange Ltd. ("NCDEX")].Performance ReviewAditya Birla Money (“ABML”) witnessed growthin commodity volumes while cash marketvolumes were affected across the Industry. Cashmarket volumes of ABML de-grew by 19% whilecommodity volumes rose by 145%. F&O volumesof ABML grew by 6% despite falling retailvolumes in derivatives. F&O volumes accountedfor 81% of total equity volumes of ABML. Duringthe fourth quarter, its market share in the retailcash equity segment, retail F&O segment andcommodity segment increased year on year from0.9% to 1.4%, from 0.5% to 0.9% and from0.28% to 0.46% respectively.During 2011-12, ABML’s revenue de-grew by 23%from ` 114 Crore to ` 88 Crore. ABML hasincreased its market share across the categoriesbut the revenue growth was impacted owing tosluggish industry volumes. Its net loss increasedfrom ` 8 Crore to ` 18 Crore.The number of customers increased to about292,000. Its points of presence increased from969 to 985 consisting of 167 branches and 818franchisees.ABML has entered into a strategic alliance withAllahabad Bank for providing online tradingplatform to the bank’s customers. This deal hasgiven ABML an access to a large customer baseof Allahabad Bank.OutlookSlow down in the economy had a bearing on thecapital markets and particularly the retailparticipation. However, in the long run, growthopportunity does exist for the Indian equitybroking industry – given the lower penetrationand rising per capita income. Technology is goingto play a major role in enhancing the retail participation.Aditya Birla Money will continue to focus on thesix pillars of this business – Brand, Product,Distribution, Operations, Service and People – togain market share and augment its earnings. Itwill lay emphasis on cost optimisation andexpanding its business through a cost-effectivebusiness partner – based model.Wealth Management (Aditya Birla MoneyMart Limited)Industry OverviewWhile there are a few large wealth managementplayers in India; mutual fund distribution industryis very fragmented. Aditya Birla Money Mart(“ABMM”) is the third largest corporate distributorof mutual funds in India with Assets underAdvisory of more than ` 12,500 Crore as on31 st March 2012 [Source: Computer Age ManagementServices (“CAMS”)]. ABMM is also a significantplayer in the wealth management space.Performance ReviewFinancial year 2011-12 was a challenging year forthe wealth management industry as fixed depositsand other safer investment avenues attractedhousehold financial savings amidst volatile capitalmarkets. Equity broking volumes, new businesssales in the life insurance sector and AUM of themutual fund industry witnessed slowdownaffecting the business of wealth management anddistribution players.Revenue of ABMM de-grew from ` 74 Crore to` 60 Crore due to sluggish financial markets.ABMM reported a net loss of ` 21 Crore vis-a-visloss of ` 19 Crore (before one-time exceptionalloss) incurred in the previous year.ABMM has a strong nation-wide distributionpresence through 32 branches and about 14,000channel partners.OutlookHigh savings growth in India implies a hugeopportunity for financial intermediation services.26 Annual Report 2011-2012
Aditya Birla Nuvo LimitedMANAGEMENT DISCUSSION AND ANALYSISDistribution and wealth management industry willcontinue to play an important role in the growthof life insurance, mutual funds and equity brokingproducts and services.ABMM’s thrust will be to provide quality wealthmanagement solutions to its client throughproduct innovation and technology support.General Insurance Advisory (Aditya BirlaInsurance Brokers Limited)Industry OverviewGross premium underwritten in the generalinsurance segment has grown by 23% fromUSD 9.5 billion to USD 11.7 billion (Source: "IRDA").Aditya Birla Insurance Brokers Ltd. ("ABIBL"),erstwhile Birla Insurance Advisory and BrokingServices Ltd., is one of the leading generalinsurance brokers in India.Performance ReviewThe premium placement by ABIBL surged by 49%from ` 205 Crore to ` 304 Crore leading to strongearnings growth. Revenue grew by 52% from` 21 Crore to ` 32 Crore. Earnings before taxgrew three times from ` 3 Crore to ` 9 Crore andnet profit grew from ` 2 Crore to ` 6 Crore.OutlookLower general insurance penetration in India islikely to boost growth of general insuranceindustry. ABIBL will focus on reaching a largercustomer base in a cost effective way to growthe business.Telecom (Idea Cellular Limited)Industry OverviewIndian wireless sector, the second largest marketin the world in terms of subscribers’ base hasseen sharp reduction in tariffs during 2009-10and 2010-11. This affected revenue growth ofthe sector while its subscribers’ base wasgrowing at a strong pace. To the much respiteof the sector, reduction in tariffs seen in earlieryears got arrested during financial year 2011-12,signifying the unsustainable levels of thesetariffs to yield any reasonable return on theinvestments.With a strong net addition of over 107 millionsubscribers, sector’s total subscribers’ base hasreached to 919 million as on 31 st March 2012.Compared to a 19% growth in subscribers’ base,gross revenue of the Indian wireless sector roseby 15% to ~USD 27 billion during calendar year2011. Out of total 15 cellular operators, the top 3players namely Bharti Airtel, Vodafone and IdeaCellular contributed to about 67% of theIndustry’s wireless gross revenue. All the majoroperators launched 3G services in India duringthe later part of the previous financial year.The industry is currently facing an uncertainregulatory environment following the cancellationof 2G licenses by the Hon’ble Supreme Court inFebruary 2012. In April 2012, therecommendations of the regulator, towardsspectrum auctions, pricing and re-farming, haveonly added to this uncertainty.Tata8.6%Reliance8.6%BSNL &MTNL7.3%Note 1 : Based on quarterly gross revenue for UAS & Mobile licenses only, as released by TRAIIndian Wireless Sector: Revenue Market Share 1(October-December 2011)Aircel4.7%Idea Cellular14.4%Others4.0% Airtel29.9%Vodafone22.5%Performance ReviewWith total Minutes on Network of 1.4 billion perday, Idea Cellular (“Idea”) ranks among the top10 cellular operators in the world. In India, Ideais 3 rd largest in terms of revenue market share 1at 14.4%. Idea is the market leader in four serviceareas namely Kerala, Maharashtra, MadhyaPradesh and Uttar Pradesh (West), in terms ofrevenue market share. It ranks 2nd in anotherfour service areas viz., Haryana, Punjab, AndhraPradesh and Gujarat.Being the fastest growing major cellular operatorin India, Idea has been outperforming the industryacross key parameters. This reflects the strengthof its brand and quality of its services.For instance, Idea has been the biggest revenuemarket share gainer since past two years. Ideahas around 93% of its reported subscribers asVLR (active) subscribers, which is highest in theMANAGEMENT DISCUSSION AND ANALYSISAnnual Report 2011-2012 27
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FINANCIAL STATEMENTS
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