aditya birla nuvo
TRANSCRIPT
Please refer to important disclosures at the end of this report 1
Aditya Birla Nuvo (ABNL), a diversified business conglomerate, emerged from the three-way merger of Indian Rayon, Birla Global Finance and Indo Gulf in 2005. ABNL is the holding company of several subsidiaries and has business interests in insurance, asset management, financial services, garments, carbon black, insulators, rayon, fertilisers, IT and ITeS businesses. The company also holds ~25% stake in Idea Cellular.
Exhibit 1: ABNL’s Business Structure
Source: Company, Angel Research
On account of the diverse nature of ABNL’s businesses, we have considered each of its business segments as an independent entity for valuation purposes. Hence, we have adopted the sum-of-the-parts (SOTP) methodology to evaluate the company.
Valuation Methodology
a) Manufacturing business: The company’s manufacturing business constitutes carbon black, agri business (fertilisers), insulators, rayon and textiles, which we have valued on EV/EBIDTA basis.
b) Fashion and Lifestyle: We have valued ABNL’s fashion and lifestyle business (garments) on EV/Sales basis, as the company has yet to report profit at the EBIDTA level.
c) IT-ITeS: We have value the IT-ITeS segment (88.3% holding of ABNL) on Mcap/Sales basis, as the business is at the stabilisation stage.
d) Other Financial Services (excluding Birla Sunlife AMC): The company’s Other Financial Services (excluding Birla Sunlife AMC) comprise the NBFC, broking, private equity, wealth management and general insurance advisory segments. We have valued this segment on P/E basis.
Stock Info
Sector
Bloomberg Code
Shareholding Pattern (%)
Promoters 46.1
MF / Banks / Indian Fls 18.5
FII / NRIs / OCBs 21.7
Indian Public / Others 13.7
Abs. (%) 3m 1yr 3yr
Sensex 4.2 13.8 19.7
ABNL (1.3) (8.9) (45.7)
Face Value (Rs)
BSE Sensex
Nifty
Reuters Code
8,353
1
1054/704
45,676
Diversified
Avg. Daily Volume
Market Cap (Rs cr)
Beta
52 Week High / Low
10
18,115
5,440
ABRL.BO
ABNL@IN
Aditya Birla Nuvo Deep Value
BUY CMP Rs811 Target Price Rs1,166
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Viraj Nadkarni 022 – 4040 3800 Ext: 309
Aditya Birla Nuvo
August 3, 2010 2
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e) Life Insurance business: ABNL holds 74% stake in its insurance arm. We have valued the segment on the basis of ‘Embedded Value’ and ‘Value for New Business’ declared by the company in 1QFY2011. We have assigned a holding company discount of 20% to ABNL’s stake value.
f) Asset Management: ABNL holds 50% in Birla Sunlife Asset Management Company (BSAMC). We have valued the AMC at 3.5% of the assets under management (AUM) as declared by the company in 1QFY2011.
g) Telecom: ABNL holds 25.4% stake in Idea Cellular (Idea). We have valued this stake on the basis of market cap of Idea at our target price of Rs55 and assigned 30% holding company discount to the same.
h) We have considered net debt, on a standalone basis, as we have valued the standalone businesses on the EV parameter.
Outlook and Valuation
ABNL has started delivering improved performance in its manufacturing businesses. The BPO and garments businesses have been profitable since the last two quarters. The insurance business and the AMC are also well geared to benefit from the significant market opportunity lying ahead. Thus, due to the diversity in the nature of ABNL’s businesses, we have valued it on SOTP basis and assigned 20% conglomerate discount. We recommend a Buy on the stock, with a Target Price of Rs1,166, implying an upside of 44% from current levels.
Exhibit 2: SOTP valuation
Source: Company, Angel Research
Aditya Birla Nuvo
August 3, 2010 3
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Profit & Loss Statement (Consolidated) Y/E March (Rs cr) FY2006 FY2007 FY2008 FY2009 FY2010
Net Sales 4,994 8,338 11,810 13,645 19,508
Total operating income 4,994 8,338 11,810 13,645 19,508
% chg 57.5 67.0 41.6 15.5 43.0
Total Expenditure 4,449 7,294 10,886 13,041 18,070
Net Raw Materials 1,411 1,846 2,099 2,657 2,503
Other Mfg costs 368 771 404 482 547
Personnel 439 1,263 1,996 2,404 2,254
Other 2,231 3,413 6,387 7,497 12,765
EBITDA 545 1,044 924 604 1,438
% chg 171.5 91.5 (11.6) (34.6) 138.1
(% of Net Sales) 10.9 12.5 7.8 4.4 7.4
Depreciation& Amortisation 225 423 525 696 866
EBIT 320 622 399 (92) 572
% chg 336.0 94.1 (35.9) (123.0) -
(% of Net Sales) 6.4 7.5 3.4 (0.7) 2.9
Interest & other Charges 117 387 476 721 662
Other Income 80 119 229 263 248
(% of PBT) 28 33 150 (54) 175
Recurring PBT 282 361 153 (483) 141
% chg 238.4 27.7 (57.7) (416.9) -
Extraordinary Income/(Exp.) (0.83) 6.28 0.48 66.03 (16.40)
PBT (reported) 283 354 152 (549) 158
Tax 94 112 126 81 114
(% of PBT) 33.2 31.6 82.8 (14.8) 72.3
PAT (reported) 189 243 26 (630) 44
Add: Share of Asso. Earning - - - - (0)
Less: Minority interest (MI) (15) (38) (125) (195) (111)
ADJ. PAT 205 275 150 (502) 171
% chg 233.1 34.0 (45.3) (433.8) -
(% of Net Sales) 4.1 3.3 1.3 - 0.9
Basic EPS (Rs) 34.2 29.4 15.8 - 16.6
Fully Diluted EPS (Rs) 34.2 29.4 15.8 - 16.6
% chg 233.1 (14.0) (46.2) - -
Aditya Birla Nuvo
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Balance Sheet (Consolidated) Y/E March (Rs cr) FY2006 FY2007 FY2008 FY2009 FY2010
SOURCES OF FUNDS
Equity Share Capital 60 93 95 95 103
Preference Capital 100 - 50 26 26
Reserves& Surplus 1,914 3,025 3,885 5,615 5,327
Shareholders Funds 2,074 3,119 4,030 5,735 5,456
Total Loans 2,365 5,462 6,648 8,887 7,439
Minority Interest 43 143 174 179 186
Policy Holders Fund 2,379 3,763 6,513 8,733 15,671
Deferred Tax Liability 168.7 179.6 226.2 219.8 240.6
Total Liabilities 7,030 12,666 17,592 23,754 28,992
APPLICATION OF FUNDS
Gross Block 3,944 6,332 8,316 9,267 10,633
Less: Acc. Depreciation 2,199 3,157 3,530 4,087 5,012
Net Block 1,745 3,176 4,786 5,180 5,621
Capital Work-in-Progress 170 381 441 726 433
Goodwill 1,181 2,815 2,791 4,188 3,827
Investments 2,917 4,543 7,320 11,082 16,956
Current Assets 2,026 3,435 4,696 5,638 5,541
Cash 154 816 794 1,534 795
Loans & Advances 802 1,070 1,871 1,914 2,674
Other 1,070 1,549 2,030 2,189 2,073
Current liabilities 1,008 1,684 2,443 3,061 3,387
Net Current Assets 1,018 1,750 2,253 2,577 2,154
Mis. Exp. not written off - - - - -
Total Assets 7,030 12,666 17,592 23,754 28,992
Aditya Birla Nuvo
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Cash Flow Statement (Consolidated) Y/E March (Rs cr) FY2006 FY2007 FY2008 FY2009 FY2010
Profit before tax 283 354 152 (549) 158
Depreciation 225 423 525 696 866
Change in Working Capital 179 197 277 459 443
Less: Other income 80 119 229 263 248
Direct taxes paid 94 112 126 81 114
Cash Flow from Operations
743 599 261 1,105
(Inc)./ Dec in Fixed Assets (121) (303) (2,433) (1,562) (1,599)
(Inc)./ Dec in Investments 10 (60) (2,777) (3,762) (5,874)
(Inc)/ Dec in loans and advances 7 (37) (802) (43) (760)
Other income 80 119 229 263 248
Cash Flow from Investing (25) (281) (5,782) (5,103) (7,985)
Issue of Equity 10 3 2 - 8
Inc./(Dec.) in loans (22) 359 1,186 2,239 (1,448)
Dividend Paid (Incl. Tax) (4) (15) (273) (190) (258)
Others 106 (146) 4,247 3,534 7,838
Cash Flow from Financing 90 200 5,161 5,583 6,141
Inc./(Dec.) in Cash 65 662 (22) 740 (740)
Opening Cash balances 89 154 816 794 1,534
Closing Cash balances 154 816 794 1,534 795
Aditya Birla Nuvo
August 3, 2010 6
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Key Ratios Y/E March FY2006 FY2007 FY2008 FY2009 FY2010
Valuation Ratio (x)
P/E (on FDEPS) 23.7 27.6 51.3 - 48.9
P/CEPS 11.3 10.9 11.4 39.7 8.1
P/BV 2.3 2.4 1.9 1.3 1.5
Dividend yield (%) 0.9 0.7 0.7 0.5 0.6
EV/Sales 2.1 1.5 1.2 1.1 0.7
EV/EBITDA 19.1 12.1 14.9 24.8 10.1
Per Share Data (Rs)
EPS (Basic) 34.2 29.4 15.8 - 16.6
EPS (fully diluted) 34.2 29.4 15.8 - 16.6
Cash EPS 71.8 74.7 71.1 20.4 100.7
DPS (Rs) 7.0 5.5 5.7 4.0 5.0
Book Value 346 334 424 604 530
Dupont Analysis
EBIT margin 32.3 37.2 3.4 - 2.9
Tax retention ratio 66.8 68.4 17.2 114.8 27.7
Asset turnover (x) 0.2 0.2 1.1 0.9 1.5
ROIC (Post-tax) 4.6 6.2 0.6 - 1.2
Cost of Debt (Post Tax) 5.0 6.8 1.4 10.7 2.2
Leverage (x) 1.3 1.2 1.5 1.4 1.3
Operating ROE 4.0 5.5 - - -
Returns (%)
ROCE (Pre-tax) 6.2 6.3 2.6 - 2.2
Angel ROIC (Pre-tax) 4.8 5.4 2.4 - 2.1
ROE 12.8 10.6 4.2 - 3.1
Turnover ratios (x)
Asset Turnover (Gross Block) 1.8 1.6 1.6 1.6 2.0
Inventory / Sales (days) 120 110 121 115 127
Receivables (days) 31 33 34 34 24
Payables (days) 50 56 60 70 57
Working capital cycle (ex-cash) (days) 46 39 37 33 22
Solvency ratios (x)
Net debt to equity 1.1 1.5 1.5 1.3 1.2
Net debt to EBITDA 4.1 4.4 6.3 12.2 4.6
Interest Coverage (EBIT / Interest) 2.7 1.6 0.8 - 0.9
Aditya Birla Nuvo
August 3, 2010 7
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Disclosure of Interest Statement Aditya Birla Nuvo 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock Yes 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors. Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%)
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