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4Ps
JUST ONE STEP FOR BHARTI; A GIANT LEAP FOR THE MITTAL BROTHERS!
4Ps
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 Now yeh Bharti maange more! But given the aura, success and grandeur of brand Airtel, can Sunil extract the same value from his other businesses? It should be noted that whenever a well entrenched player in a particular sector has forayed into other sunrise sectors, the path has not been easy. Take the shining example of India’s business monarch, Mukesh Ambani, who deviated from his core competence in the petro-chemical business and ventured into retail; only to falter. Ratan Tata’s ventures into telecom and retail have not really acquired the stature they could have given his deep pockets, huge manpower resource and influence. So what is in store from the next leap of the Mittal brothers? But before, we
examine their options, here’s the caveat. Airtel’s m-Cap of Rs.1.52 trillion is a difficult mountain to scale for any of Mittal’s new businesses – at least in the medium term. The analysis of all Bharti Enterprise’s diversifications merely gauges their potential and whether they can ever become the cash cow that Airtel already is!
THE AXA EFFECT
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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 AGRARIAN DREAMS
Another area where the Mittal brothers are hunting for jewels is agri-business. Under full charge of the eldest in the trio, Rakesh Mittal, Bharti Del Monte is engaged in exporting fresh fruits and vegetables via the FieldFresh brand. Besides being the largest exporter of fresh baby corn in India, FieldFresh supplies fresh fruits and vegetables to modern retailers like Big Apple and its own retail venture, Easyday. The JV is now also flexing its muscles in the domestic market, with the recently launched Del Monte range of processed foods and beverages - including packaged fruits, ketchups, fruit drinks and range of Italian products. The Indian processed food market stands at a whopping $65 billion and is poised to grow at an annual rate of 12-15%. Translated for the Bharti Del Monte JV this promises a huge growth potential. So could the agri-business be Bharti’s next big leap?
“I don’t think so,” says Shushmul Maheshwari, CEO, RNCOS. His reasoning is based on the lack of a masses strategy so far in the business. Airtel has largely succeeded on the back of strong reach, accessibility and affordability. It reaches high end to low class consumer segments. Del Monte’s range of products, on the other hand, have a premium pricing as they are importing their entire range. He believes that Bharti’s premium pricing is to avoid the present cost pressures.
Perhaps Rakesh Mittal has a similar inkling. He plans to invest Rs.100 crore over the next year to set up a food processing facility at Hosur in Tamil Nadu. Bharti Del Monte would be able to churn out processed foods and beverages from here by 2010. That perhaps could be the Mittal ticket for a masses-led strategy and eventually market dominance. But even then, the road does not promise to be smooth. Bharti does need to deal with the intrinsic challenges of agri-business beyond its control like variations in quality of produce, APMC regulations, lack of standardisation, small land holdings, poor storage and transport infrastructure, et al. So that’s perhaps another cross!
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