Re: {LONGTERMINVESTORS} Aditya Birla Nuvo Ltd ...thread
RAJESH DESAI
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CA. Rajesh Desai
RAJESH DESAI
AV Birla Nuvo looking to rework Pantaloon's deal value post more than anticipated decline in first quarter results: TOI (Valuations dip could be 5-10%) -AV Birla had agreed to buy 50% stake for Rs 800 crore + Rs 800 crore of debt)
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CA. Rajesh Desai
Rajesh Desai
Aditya Birla Nuvo - Sharekhan
Recommendation: Buy
Price target: Rs1,325
Current market price: Rs1,192
Price target revised to Rs1,325; Buy maintained
Result highlights
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Aditya Birla Nuvo (ABN) posted a decent consolidated performance for Q1FY2014 aided by the telecommunications (telecom) and financial services businesses.
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The reported revenues, operating profit and net profit grew by 7.9%, 27.7% and 24% year on year (YoY) respectively. The results are not comparable on a year-on-year (Y-o-Y) basis as they include several new as well as discontinued businesses (Q1FY2014 results include Pantaloons' acquisition, effective from July 2012, while they exclude the carbon black division that was sold through a slump in the sales, effective from April 2013).
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On a like-to-like basis (normalising the impact), the top line, operating profit and net income grew by 13%, 37% YoY and 30% respectively.
Key positives
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NBFC performance strong: The non-banking financial company (NBFC) business grew strongly (+112.5%) led by doubling of its loan book from Rs4,250 crore to Rs8,400 crore. The average return on net worth was up from 12.1% in Q1FY2013 to 14.4% in Q1FY2014 while the return on average assets remained stable at 2%.
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Telecom business-"Idea" solid performance: For Q1FY2014, Idea Cellular (Idea) reported a solid set of results, which were way higher than our expectation. The revenues, operating profit and net profit grew by 7.9%, 24.1% and 50.1% on a sequential basis respectively. The margin improved by a phenomenal 415 basis points quarter on quarter (QoQ) to 31.8% for the quarter. All the key performance indicators stood rock solid with realisation increasing by 6.1% QoQ (highest growth amongst the listed Indian telecom companies [telecos]).
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Lifestyle business-"Madura" grows strongly: The brand performance under Madura Lifestyle (Madura) continued to grow with a robust sales growth of 14%, and the overall growth at 25% YoY for the quarter. The profitability improved drastically (OPM, +80 basis points; operating profit, +54.2% YoY).
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Balance sheet strengthened: The net debt to EBITDA on a stand-alone and consolidated levels improved substantially to 2.1x on account of a reduction in the subsidy (leading to lower working capital loans in the agriculture [agri] business) and a reduction of debt on account of a slump in the sales of the carbon black business.
Key negatives
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New business premium continues to decline: The new business premium for Birla Sun Life Insurance declined by 22.4%, largely owing to the change in the product mix to follow on the new Insurance Regulatory and Development Authority (IRDA) guidelines.
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Asset quality in the NBFC arm deteriorates: Though the NBFC loan book grew strongly (~100% YoY), the asset quality saw a deterioration with the gross non-performing assets (NPAs) for the quarter at 1.8% as against 1.2% in Q1FY2013.
Valuations and view
We
like the strong positioning that ABN's businesses enjoy in
their respective fields. ABN is amongst the top five players
in the insurance, asset management and telecom (Idea is the
fastest growing telecom company, third in ranking) segments. Madura,
with its marquee brands, and consistent and resilient growth,
is a leader in its segment. Given the diverse businesses in
which ABN is present, we value the company on a
sum-of-the-parts (SOTP) basis and then adjust it with the
company's consolidated debt to arrive at a price target.
We
retain our Buy rating on the stock and revise our price
target to Rs1,325 (earlier Rs1,254). The change in our price
target is reflective of (a) incorporation of the strong
earnings upgrade of Idea (25.4% holding); (b) reduction in the price
to book (P/B) multiple of NBFC business from 1x to 0.8x
accounting for the increasing NPAs and loan book exposure
towards the capital market and infrastructure financing; and
(c) lowering of the new business premium margin for the
insurance business (from 16.5% to 15%) to account for change
in the product mix.
CA. Rajesh Desai