Aditya Birla Nuvo Limited Initiating Coverage Research Analyst Nitesh Goenka Phone No: 033-30512178 [email protected] Aditya Birla Nuvo Ltd. (ABNL) BUY Sector - Diversified Market Data We rate Aditya Birla Nuvo Ltd. a BUY. ABNL is a USD3.5 billion, diversified conglomerate Current Market Price (INR) 746.40 having a portfolio of manufacturing as well as service sector businesses under its umbrella 52 Week High / Low(INR) 965/ 704 ranging from textiles to financial services. Aditya Birla Nuvo, through its subsidiaries and Target Price (INR) 1,001 joint ventures, has made successful forays into life insurance, telecom, business process Upside 34.1% outsourcing (BPO), IT services, asset management and financial services. As per our Market Cap (In INR Mn) 8,472.36 estimates the company is expected to show incremental growth with a Net Profit of around Sha reholding (As on 31 December 2010 INR 6 billion in FY2011 after posting a small profit of INR1.5 billion in FY2010. We expect the price to book value of ABNL for its FY 2012E to be 1.19x. Non- Applying SOTP (sum of Institutions Mututal & GDR, the parts) method towards its FY2012 earnings, we value the company at Funds, 0.98 19.73 INR1,001, an upside of 34.1%. Investment Rationale Other Focus on growing businesses: ABNL is focusing on tapping growth opportunities across Promoter Institutions, and 28.24 businesses. The Company is looking forward to grow in segments such as life insurance, Promoter financial services and carbon black. Group, 51.05 Expansion/Diversification: The Company has been on an expansion plan for the past two years and may continue doing the same. There may be some acquisitions in order to expand STOCK SCAN inorganically. The diversified portfolio of the business decreases the risk component. BSE Code 500303 NSE Code ABIRLANUVO Listing of businesses: The Company may evaluate value creation in IT-ITes & Finance Bloomberg Ticker ABNL IN business on attaining the right size by listing its different business (such as Aditya Birla Reuters Ticker ABRL.BO Finance). This may give a sudden boost to the inherent value of different parts of the Face Value (INR) 10.00 companies businesses. Equity Share Capital (In INR Mn) 1,136 5 Yr Average P/E 44.4x Exhibit 1. ABNL – Historical Financials and Projections [INR Millions] Beta vs Sensex 0.93 Average Monthly Volume (Mn) 0.11 Particulars FY2008 FY2009 FY2010 FY2011E FY2012E Net Sales 113,738 143,155 155,052 183,412 234,406 Growth (%) 41.5% 25.9% 8.3% 18.3% 27.8% EBITDA 11,529 8,674 16,862 25,452 32,969 EBITDA Margin (%) 10.1% 6.1% 10.9% 13.9% 14.1% Net Profit 1,508 (4,357) 1,546 6,013 10,311 Net Profit Margin (%) 1.3% NA 1.0% 3.3% 4.4% Net Profit Growth (%) -46.3% -388.9% -135.5% 288.9% 71.5% EPS (INR) 16 (46) 15 53 91 BVPS (INR) 424 604 531 535 626 P/E 88.8 NA 60.5 14.1 8.2 P/BV 3.29 0.74 1.71 1.39 1.19 RoE (%) 3.7% -7.6% 2.8% 2.8% 4.5% EV/EBITDA 16.6 13.4 9.5 6.0 4.6 Source: Company, Microsec Research - 2 - 24 February 2011 Microsec Research Table of Contents SL Content Page No 1 Cover page 1-1 2 Investment Rationale 2-2 3 Company Overview 4-5 4 Key Management 5-5 5 Business Segments and Analysis 6-12 6 SWOT Analysis 13-13 7 Valuation 14-14 8 Key Risks 14-14 9 Financial Performance 15-17 10 Notes 18-18 11 Microsec Research and Disclaimer 19-20 - 3 - 24 February 2011 Microsec Research Company Overview - 4 - 24 February 2011 Microsec Research ABNL is part of USD30 Billion Aditya Birla Group. Operating in 27 countries across six continents with over 60% of revenue flowing from its overseas operations, Aditya Birla Group is in the league of fortune 500. ABNL manufactures viscose filament yarn, linen yarn & fabric, fertilisers, carbon black, insulators and branded apparel. Aditya Birla Nuvo ranks as: • India's second largest producer of viscose filament yarn (VFY) • The country's largest premium branded apparel company • The second largest producer of carbon black in India • Largest manufacturer of linen fabric in India • India’s largest and the world’s fourth largest producer of insulators Aditya Birla Nuvo’s joint ventures and subsidiary companies include: • Idea Cellular Limited, among top three cellular operators in India in terms of revenue market share. • Birla Sun Life Insurance, among top six private life insurance companies in India • Birla Sun Life Asset Management, among top five asset management companies in India • Aditya Birla Minacs Worldwide Limited, among the top ten BPO players in India by revenue size Key Management Board of directors: • Mr. Kumar Mangalam Birla, Chairman • Mrs. Rajashree Birla • Mr. B. L. Shah • Mr. P. Murari (independent) • Mr. B. R. Gupta (independent) • Ms.Tarjani Vakil (independent) • Mr. S. C. Bhargava (independent) • Mr. G. P. Gupta (independent) • Dr. Rakesh Jain, Managing Director • Mr. Pranab Barua, Whole Time Director Mr. Kumar Mangalam Birla, Chairman Managing director: • Dr. Rakesh Jain Vision (Aditya Birla Group): “Our Goal is to become a Chief financial officer: USD65 Billion Group by 2015 • Mr. Sushil Agarwal from USD30 Billion today. We expect our company to Business heads: contribute significantly to this • Dr. Rakesh Jain (fertilisers, insulators, BPO & IT) growth and earnings.” • Mr. Ajay Srinivasan (financial services) • Mr. Pranab Barua (garments, textiles) • Dr. Santrupt Misra (carbon black) • Mr. Sanjeev Aga (telecom) • Mr. Lalit Naik (viscose filament yarn) - 5 - 24 February 2011 Microsec Research Business Segments and Analysis Financial Services: ABNL’s financial services vertical includes several businesses such as • Life Insurance • Asset Management • NBFC • Private Equity • Broking • Wealth Management • General Insurance Advisory Life Insurance: Birla Sun Life Insurance Company (BSLI) is a joint venture between the Aditya Birla Group and Sun Life Financial Inc, a financial services organisation based in Canada. BSLI offers solutions that include protection, health, wealth with protection, children and retirement needs, and has a pan-India reach with 600 branches. The company is having more than two million customer base, BSLI is ranked among the top six private life insurance companies in India. With more than 150,000 direct selling agents, BSLI has made its reach to several rural areas as well. Currently, BSLI manages more than INR 191 billion of assets. Its AUM saw a rise of more than 75% in FY10 over FY09. Particulars (INR Billion) 2008-09 2009-10 2010-11E 2011-12E First Year Premium 28.21 29.60 31.30 32.98 Renewal Premium 17.51 25.46 33.90 47.17 Total Gross Premium 45.72 55.06 65.20 80.15 ABNL holds 74% share in BSLI. The company has been into losses since past decade. However, in FY11 the company has started reaping the benefits and showing positive results. Particulars (INR Million) Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Revenue from Operations 11,463 14,696 17,594 10,951 14,170 12,548 EBIT (1,249) (1,400) (513) 118 225 1,288 Capital Infusion 1,250 1,000 1,750 - - - We expect the life insurance business, health insurance business of BSLI to grow and reap positive results going forward. Asset Management: Birla Sun Life Asset Management Company Limited (BSAMC) ranked 5th among the 43 asset management companies in India, with 8.5% market share as on December 2010. The total average AUM of BSAMC is INR 615 billion in Q3FY2011. In 9M, BSAMC’s y-o-y revenue grew by 50% and net profit grew by 138%. BSAMC also won ‘Asset Management Co. of the year 2010' award by The Asset magazine, Hong Kong, for the second year in a row. - 6 - 24 February 2011 Microsec Research Average Assets under Management Particulars (INR billion) 2008-09 2009-10 2010-11E Equity 46.1 110.5 137.1 Debt and Liquid 424.9 512.9 587.9 Domestic 471.0 623.4 725.0 Offshore (All Equity) 12.7 24.2 29.5 PMS 2.9 3.7 2.9 Real Estate Fund - - 12.7 Total 486.5 651.3 770.1 BSAMC, with a distribution network of 105 branches and over 33,000 financial advisors is targeting to be among the top 3 players going forward. Particulars (INR million) 2008-09 2009-10 2010-11E 2011-12E Net Income from Operations 1,780 2,930 4,080 6,177 EBIT 158 700 1,170 1,771 Net Profit 79 484 960 1,453 The average AUM of the Indian mutual fund industry grew by 52% from INR 4,929 billion in March 2009 to INR 7,475 billion in March 2010, driven by higher inflows into liquid funds and mark-to-market gains in equity funds. Looking at the growth potential we see that the total AUM of BSAMC may show a growth of more than 18% in FY2011 over FY2010. NBFC: Aditya Birla Finance Limited (ABFL) provides loan against securities (LAS), IPO financing and corporate bill discounting services. It also introduced new products such as Loan against Share for Individuals, ESOP Financing, and Bond Financing etc. to cater to the needs of different customer segments. Particulars (INR million) 2008-09 2009-10 2010-11E 2011-12E Net Income from Operations 1,203 728 1,368 1,642 EBIT 437 457 568 689 Net Profit 296 300 379 460 Credit penetration in India, currently is around 60% of GDP. This is lower compared to other emerging and developed economies.