Aditya Birla Nuvo
Price target: Rs1,031
Current market price: Rs733
Impressive performance by value businesses
Result highlights
The consolidated revenues of Aditya Birla Nuvo (ABN) in Q1FY2007 grew by 88.6% year on year (yoy) to Rs1,459.1 crore, in line with our estimate. The growth was driven by (1) a strong double-digit growth in its value businesses; (2) the addition of the fertiliser and finance businesses due to the merger of Indo Gulf and Birla Global; (3) a higher share in the telecom business at 20.7% during the quarter as well as a partial effect of the 15% stake in Idea Cellular acquired from the Tatas; and (4) the continued momentum in its growth businesses.
The share of high-growth businesses (garments, life insurance, business process outsourcing [BPO], software and telecom) improved to 57% of sales in Q1FY2007 as compared to 51% in the same period last year.
A sharp margin expansion was witnessed in all the businesses except insurance, BPO and telecom. The margin expansion yoy was of 360 basis points in the garment business, 850 basis points in the software business, 300 basis points in the carbon black business, 190 basis points in the insulator business and 130 basis points in the textile business.
The insurance business rebounded this quarter with the revenues growing by 98.7% to Rs358.5 crore, on the back of a 91% growth yoy in the new business premium to Rs149.8 crore. The loss at the profit before interest and tax (PBIT) level grew to Rs18.1 crore against a loss of Rs3.8 crore in Q1FY2006.
Driven by the good performance of the key business segments and the addition of new businesses, the operating profit margin (OPM) saw an expansion of 240 basis points yoy to 13.7%. Consequently the operating profit grew by a robust 128.7% yoy to Rs199.8 crore. Even the net profit grew by a strong 100.1% yoy to Rs67.5 crore.
Given the diverse businesses of ABN, the company is best valued using the sum-of-parts method. Based on the sum-of-parts valuation of the merged entity, we estimate the fair value of ABN to be Rs1,031 per share. The stock is available at a 28.8% discount to its fair value and we maintain a Buy recommendation on ABN with a 12-month price target of Rs1,031.