Aditya Birla Nuvo (ABN) is amongst the top five players in the insurance, asset management and
telecom (Idea Cellular is the fastest growing telecom company, third in ranking) segments. ABN’s
businesses enjoy strong positioning in their respective fields. Further, the promoter is infusing equity
into the company by subscribing to the warrants that would be convertible into equity shares over the
next 12-15 months. That would aid in soothing the company’s stretched leverage position (stand-alone
net debt/EBITDA at 4x). It also speaks of the promoters’ confidence in the business.
The value businesses of the company (insulators, textiles, fertilisers, carbon black and rayon) have
started witnessing increased efficiency as reflected in the sharp improvement in their operating profit
margin (OPM), while the growth businesses (retail, BPO, life insurance and financial services) are
showing improved revenue visibility and gaining strong market share. The strong internal cash flows
from value businesses coupled with the promoter funding would aid in meeting the funding requirement
of the growth businesses.
Given the diverse businesses in which ABN is present, we value the company on a SOTP basis, giving a
piecemeal value to each business and then adjusting the same with the company’s consolidated debt
to arrive at a price target. We maintain our Buy rating on the stock with a price target of Rs943. Recent
government reforms on foreign direct investments in retail and likely reforms in insurance sector
investment are positive for the company’s business going forward.
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