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Aditya Birla Nuvo Ltd.
Good results; valuation upside
PO tweaked up; maintain Buy despite Idea downgrade
We have tweaked up our PO for ABNL to Rs960/sh (+2% vs earlier) as downside
due to our rating cut on Idea Cellular is offset by higher valuation of the garments
business & lower net debt projections. We see strong valuation upside potential in
the stock after factoring 30% conglomerate discount. Upside triggers could come
from better-than-expected growth of the asset mgt. business (esp. vs peers) &
potential ramp-up of the consumer-finance business (trailing BV of ~Rs40/sh).
Overall improvement in 2Q; insurance turnaround intact
In 2Q, ABNL’s consolidated EBITDA grew 66% YoY and 12% QoQ as most
businesses, barring telecom & VFY, posted higher earnings. Garments and
fertilizers delivered strong positive surprise. Across businesses, top-line growth
was the key earnings driver. The insurance business sustained its recent profit
turnaround & EBIT nearly doubled owing to strong cost containment efforts.
FY11-12E EBITDA trimmed due to weak telecom outlook
We have cut EBITDA forecasts by ~5% for FY11E and ~3% for FY12E primarily
due to lower revenue and margin assumptions for the telecom business reflecting
our recent Underperform rating on Idea Cellular (C-3-9, Rs68.65). We have hiked
our revenue and profit projections for the garments business to reflect sustainable
economies of scale, in addition to the festival season boost in 2Q. Uplift in net
profit mainly reflects lower interest and tax forecasts.
Management remains bullish on financial services growth
Mgt. expects margin hit from the new life-insurance regulations to be less than
200bps (vs our expectation of ~400bps) due to change in their policy mix, revamp
of their distribution channels and strong cost focus. Additionally, the Co is very
bullish on ramping up its new consumer finance business.
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