THE AXA EFFECT

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In July 2006, Bharti ventured into the financial services sector along with the France-based AXA Group with Bharti AXA Life Insurance, General Insurance and Investment Managers. Their performance in the first year of operation was nothing to write home about. Not only did the life insurance business fail to meet the social sector obligation, it had an equity share capital base of just Rs.1.1 crore as compared to others like Shriram Life Insurance (launched in 2005) and Future Generali (2007) who had a base of Rs.125 crore and Rs.185 crore respectively in their first year. Sure, Bharti AXA has picked up since then and recorded a 1355% growth in first year premium collections in FY 2007-08, but does the company have the potential to bring in the next big leap for Bharti? Tough! Given that the Indian market is largely uninsured and under-insured, on the face of it, there does seem huge potential for private insurers to cash in. But Bharti AXA has largely concentrated on the urban market so far, with limited focus on the mass market - lower income sections, semi-urban and rural markets. Moreover, Bharti AXA’s high-cost operating model has been unable to yield profitability in the low ticket high volume business. N. Wadhwa, MD, SKI Capital Securities, sums up, “Bharti entered the sector without appropriate knowledge and expertise.”

There are others who believe that given Bharti’s stature and reputation in the Indian market, it should be easier for them to get customers for their financial businesses. Asserts Ashok Jainani, Vice President – Research & Market Strategy, Khandwala Securities Ltd, “In my opinion, Bharti’s insurance business will succeed mainly because it is a very capital intensive industry and Bharti AXA has the support of its telecom business and can perhaps even take leads from Airtel’s subscriber base.” He further explains that there is a huge untapped mass potential in both urban and rural areas, which has not been exploited. “Bharti AXA may not be the number one player in the segment it operates in, but it will surely prove to be a profitable venture,” Jainani explains. He may have a point given that Bharti AXA recorded a whopping 511.8% growth in industry-wide premiums received in H1 FY’09 as compared to last year. But even then, the insurance sector has a long gestation period. And with deeply entrenched players like LIC and ICICI Prudential in the reckoning, even if Bharti AXA does well in the short to medium term, it will take time to join the league of numero unos in the business.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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