Aditya Birla Nuvo Ltd. (ABNL)|Q2FY15 Result Update | Strong EBITDA performance across key verticals; Any news on corporate action will be key triggers: Maintain BUY :: IndiaNivesh

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Aditya Birla Nuvo :: ShareKhan Diwali Muharat Picks 2012

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.

Aditya Birla Nuvo Ltd. Insurance recovery to drive upside 􀂄 BofA Merrill Lynch,

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Aditya Birla Nuvo Ltd.
Insurance recovery to drive
upside
􀂄 Profit growth moderates but valuations intact; Buy
Factoring 2Q FY12 results, we have cut ABNL’s consolidated EBITDA by 6-7%
for FY12-13E. The cuts are led by 1) lower insurance profits factoring service-tax
adjustments highlighted in 2Q results, 2) weaker outlook for carbon black. Our PO
for ABNL stays unchanged at Rs1090/sh as insurance valuations at this stage are
predominantly driven by premia growth & lower carbon black profits are offset by
better garment valuations; telecom (Idea) valuation in ABNL stays unchanged.
Upbeat on insurance as market growth recovers
A key highlight of ABNL’s 2Q FY12 performance is the 58% growth in NBP in
September. This mostly reflects market share gains and we expect growth to
remain strong led by overall market recovery. We forecast new business growth
at 10% YoY in FY12 (vs -17% in 1H) and 15% in FY13. We expect ABNL to
outperform the industry in terms of NBAP margins, owing to its product mix and
improving persistency.
Uptick in net debt & working capital are concerns
In 2Q FY12, ABNL’s standalone net debt rose 15% QoQ and net working capital
increased 28% QoQ. These increases are points of concern given that standalone
net debt/EBIDTA is already high at 3.5x. Our discussions with the Co indicate low
likelihood of further deterioration. Also, borrowing costs for ABNL are expected to
remain low at least for the next 2 years given fully hedged & low fixed-cost loans.
2Q FY12 results cushioned by conglomerate model
ABNL’s recurring 2Q FY12 net profit stood at Rs2.1bn, up 3% YoY and down 15%
QoQ. Results were below consensus and our expectations due to QoQ pull-back
in insurance profits owing to service tax adjustments and new-business strain.
Among other businesses, carbon black was weaker than expected due to slower
top line while garments did better on a combination of higher growth & margins.

Aditya Birla Nuvo Ltd. — Strong margins in key businesses ::BofA Merrill Lynch,

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Aditya Birla Nuvo Ltd. — Strong margins in key
businesses
Price Objective Change
PO up led by telecom; re-iterate Buy
Post 1Q results, we have raised PO for AB Nuvo (ABNL) to Rs1090/sh (up ~15%)
led by higher valuation of its stake in Idea Cellular (PO of Rs100/sh) and rollforward
to FY13. Multiples for the insurance business are at 7x FY13E NBAP on
better margins. Value of the manufacturing businesses also stands trimmed led
mostly by earnings cut especially for the BPO, garments & fertilizer businesses.
Tariff hikes lift Idea’s margin outlook
We have a Neutral rating on Idea (Rs92.45/sh) due to strong short-term earnings
but already rich valuations. Post the recent 20% hike in on-net tariffs by GSM
majors including Idea, we expect strong earnings momentum in FY12 on the back
of improving margins. Our long-term outlook is cautious as the industry’s
competitive structure remains fragmented & potential changes in spectrum pricing
are a key regulatory risk.
Margins in insurance look strong; other businesses stable
We value the life-insurance business (BSLI) at Rs503/sh. New business is
forecast to grow +10/15% in FY12/13 & we estimate NBAP margins at 20%. The
AMC & NBFC biz are valued at Rs136/share. BSLI reported 1Q PBT of Rs1.4bn
driven by lower new business strain, better persistency & lower opex. The Co
reported full-year FY11 NBAP margin at a high 27.5% and FY11 EV grew 8%
YoY. However, new business premia in 1Q was down 32% YoY
1Q FY12: insurance & telecom key +ves, mixed bag in mfg.
ABNL’s consolidated 1Q FY12 net profit stood at Rs2.5bn, up 70% YoY and
down 14% QoQ. EBITDA grew 47% YoY and stayed flat QoQ beating our
expectations due to better than expected insurance and telecom margins. The
mfg. businesses posted mixed results with BPO being a key disappointment &
textiles doing better.

Aditya Birla Nuvo – 1QFY12 results update ::RBS

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Birla Sunlife disclosed embedded value of Rs41.1bn as of March 2011 compared to Rs38.2bn as
of March 2010. The VNB margin reported was 27.5% in FY11 (+500bps yoy). As regards
manufacturing businesses, the sales momentum continued but margins came under some
pressure.


Manufacturing businesses
􀀟 Net sales increased 42% yoy to Rs18.6bn in 1QFY12 (+5% qoq).
􀀟 EBITDA margin was down 220bps yoy (-44bps qoq) to 13.1% in 1QFY12 and EBIT margin
down 145bps yoy (-24bps qoq) to about 10.5%.
􀀟 EBITDA was Rs2.5bn in 1QFY12 (our FY12F EBITDA is Rs10.9bn) and EBIT was about
Rs2bn in 1QFY12 (our FY12F EBIT is Rs 8.6bn).
􀀟 The standalone net profit was Rs942m in 1QFY12 (+45% yoy, flat qoq).
􀀟 The standalone net debt was about Rs31.2bn as of June 2011 (largely flat qoq). Of this, about
Rs13bn were working capital loans.
Insurance business - Birla Sunlife Insurance (BSLI)
􀀟 According to the management, the growing size of in force book, lower new business strain,
balanced product mix and better expense management have strengthened the bottom line in
1QFY12. The company posted a net profit of Rs1.4bn in 1QFY12 compared to Rs90m in
1QFY11.
􀀟 The non-ULIP policies contributed to 47% of new business in 1QFY12. Further, the 13
months persistency ratio was 83% as of 30 June 2011, which contributed to higher renewal
premium (+29% yoy in 1QFY12).
􀀟 The embedded value (EV) disclosed by the company was Rs41.1bn as of March 2011
(Rs38.2bn as of March 2010). Further, the VNB margin reported was 27.5% in FY11 (22.5%
in FY10). The capital base remained unchanged at Rs24.5bn as of June 2011.
􀀟 New business premium income was down 32% yoy in 1QFY12 to Rs3.2bn, due to subdued
ULIP sales.
􀀟 Assets under management were about Rs200bn as of June 2011 (+19% yoy).



AMC business- Birla Sunlife Asset management
􀀟 The total assets under management (AUM) on an average were Rs714bn in 1QFY12 (+6%
qoq; flat yoy). Of this, equity assets were about Rs140bn (flat qoq; +2% yoy), debt assets
were Rs560bn (+7% qoq; down 2% yoy) and the balance in PMS and real estate fund.
􀀟 Revenues declined 15% yoy to Rs850m (+29% qoq) in 1QFY12 and the net profit was
Rs180m in 1QFY12 (-44% yoy).
Consolidated performance
􀀟 On a consolidated basis, the company posted a net profit of Rs2.5bn in 1QFY12 vs net profit
of Rs1.5bn in 1QFY11

Aditya Birla Nuvo – Birla Sun Life: short-term pain:: RBS

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In response to new IRDA guidelines on ULIPs, the insurer has made a U-turn in product strategy.
We expect its high agent productivity and strong focus on protection to pay off during the painful
transition. We revise our target price to Rs1,387 and maintain our Buy.


BSLI: U-turn in product strategy
Birla Sun Life Insurance (BSLI) thrived on product innovations in the unit-linked insurance plan
(ULIP) segment (it was the first private sector insurer to introduce ULIPs and NAV guarantee
plans in India), allowing it to charge premium pricing. However, with new product guidelines
capping the cost of intermediation, the expensive agency-based model has made it difficult for
Birla Sun Life to grow its linked business. Hence, to maintain profitability, it has shifted to selling
traditional non-participatory policies (50% of NBP in 2HFY11) and steered away from singlepremium
policies.
BSLI: Focus on agency productivity looks set to continue
Birla Sun Life relies heavily on its agency force for distribution (agency: 70%, bancassurance:
15%). In the absence of a bancassurance partner, it is critical for the insurer to maintain high
agent productivity and it has said this will remain a priority. Going forward, it will focus on a
‘gradual’ network expansion. If the regulator allows multiple tie-ups for banks , we think this could
provide a further fillip to its new business growth.
BSLI: Focus on protection should pay off
The insurer’s product strategy is focused on: 1) selling linked policies with guarantees; and 2)
higher sum assured giving the savings/investments business the ‘protection’ tilt. We believe
higher sum assured insulates the insurer against the risk posed by proposed direct tax code.
We increase ABNL’s TP as we revise valuation for BSLI and MTM listed investments
With no strong bancassurance support, we expect BSLI to grow slower than bank-backed
insurers. However, BSLI could retain or even improve its margins as it is selling high-margin, nonpar
products. We raise our valuation of BSLI from Rs47bn to Rs70bn (1.5x FY12F EV, 5.3x
FY12F BV) or from Rs297 per share to Rs439, and mark to market listed investments. This lifts
our TP to Rs1,387 from Rs1,100. A key risk is that pricing restrictions imposed by IRDA on
traditional policies adversely impact the company’s business model.

Aditya Birla Nuvo – RBS China India Access – Day 1:: RBS

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We hosted ABNL among other companies at the RBS China India Access meet in London.
Following are the key highlights of the same.


Birla Sunlife Insurance (BSLI)
The company has not disclosed its NBAP margin/EV for FY11. However, management
indicated that its NBAP margin remained stable yoy (22.5% in FY10). The embedded
value (EV) last disclosed by the company was Rs38.2bn as of March 2010.
The capital base remained unchanged yoy at Rs24.5bn as of March 2011. The
management does not expect capital infusion in FY12 as new business growth is
expected to be moderate and the contribution of renewal premium in total premium is
rising.
Aditya Birla Finance (NBFC)
The management plans to aggressively grow this business. The company received
capital infusion of Rs 2.25bn in FY11 taking the net worth to Rs 5bn as of March 2011.
The management stated that the strategy is to grow in financing of SME businesses by
leveraging the ABG (Aditya Birla group) ecosystem.
Manufacturing businesses
Carbon Black segment: The management stated that Aditya Birla Group (ABG) has
entered into an agreement to acquire Columbian Chemicals. According to management,
post the proposed acquisition, ABG will become the world's largest carbon black player.
The management states that the proposed acquisition has no direct financial impact on
ABNL. However, indirect benefits may accrue in the form of efficiencies in raw material
procurement for the carbon black business segment of ABNL.
Garments segment: Revenues grew by 45% yoy and EBITDA margin was 7.6% in FY11.
The management expects the revenue growth to moderate in FY12 due to increase in
apparel prices. However, the company plans to add 200 new stores in FY12 (895

exclusive brand outlets as of March 2011) which should enable it to maintain the long term
growth momentum
The standalone ROACE in the manufacturing businesses (ex garments) is about 25-26%,
despite the recent pressure in input costs. Going forward, the management expects to largely
maintain this level of ROACEs.
IDEA Cellular (IDEA IN)
According to management, IDEA had a market share of 13% of revenues in 3QFY11.
However, as a proportion of incremental revenues the market share was about 20%, which
gives management the confidence that IDEA will emerge as a strong player relative to
competition
Aditya Birla Minacs (IT-ITeS)
According to management, Minacs sold total contract value (TCV) of more than $775mn
during FY11 and won 21 new logos.
The company's revenue increased 11% yoy to about Rs 17bn and EBITDA was up 75% yoy
to Rs 1.8bn. EBITDA margins improved 400 bps yoy to about 11% in FY11
Valuation
Our SOTP-based target price consists of: 1) the BSLI stake (27% of our TP), financial services
(insurance, asset management and the listed AB Money Ltd) (8% of our TP); 2) the telecom
business (25.4% stake in IDEA, 35% of our TP); and 3) the manufacturing businesses (30% of
our TP)

Kumar Mangalam Birla, Chairman, The Aditya Birla Group:: IIFL

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Kumar Mangalam Birla, Chairman,
The Aditya Birla Group
Mr. Kumar Mangalam Birla, Chairman, The Aditya Birla Group, holds
several key positions on various regulatory and professional boards. A chartered
accountant, Mr. Birla earned an MBA from London Business School, where he is
also an Honorary Fellow. He is a Director of the Central Board of Directors of the
Reserve Bank of India and Chairman of the Staff Sub-Committee of the Central
Board of the Reserve Bank of India. He serves on the Prime Minister of India's
Advisory Council on Trade and Industry. He has authored the nation's First Report
on Corporate Governance. On the academic front, Mr. Birla is the Chancellor of
BITS, Pilani, Hyderabad, Goa and Dubai. He is a Director of the G. D. Birla Medical
Research and Education foundation. He is on the Asian Regional Advisory Board of London Business
School. He has been inducted on The Economic Times Corporate Advisory Board.
Speaking with R Sridharan of ET Now, Kumar Mangalam Birla says, “We will use the creeping
acquisition route to increase promoter holdings across our companies.”

Aditya Birla Nuvo - A possible insurance play:: Macquarie Research,

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Aditya Birla Nuvo
A possible insurance play
Company profile
 Aditya Birla Nuvo is a diversified conglomerate with interests in viscose
filament yarn, carbon black, branded garments, agri-business, textiles and
insulators. Through its subsidiaries and joint ventures, the company has made
forays into life insurance, telecom, business process outsourcing (BPO), IT
services, asset management and financial services.
 The company has leading positions in various businesses. It is India’s largest
premium-branded apparel company and also the country’s largest
manufacturer of linen fabric.
 The company’s noteworthy joint venture and subsidiary companies are: Idea
Cellular Ltd, Birla Sun Life Insurance, Birla Sun Life Asset Management and
Aditya Birla Minacs Worldwide Limited

Aditya Birla Nuvo 3QF11: Insurance Profits Drive Overall Beat : Morgan Stanley

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Aditya Birla Nuvo  
3QF11: Insurance Profits Drive Overall Beat 
ABNL reported better than expected 3QF11 profits:
Revenue, EBITDA and net profit were Rs47.5bn,
Rs6.9bn and R2.75bn respectively, vs. our estimates of
Rs56bn, Rs5.2bn and Rs1.4bn. Revenues were lower
than expected due to a 15% decline in insurance
business (vs. MSe 5% growth). EBIT growth of 156%
was driven by continuing profitability of life insurance
business, garments and better absorption of overall
fixed costs. Manufacturing business in Q3F11 had
strong top-line growth of 25% YoY while operating profit
declined 11% (driven by agri, carbon black and rayon).

Aditya Birla Nuvo buys Columbian Chemicals for US $875mn: Angel Broking

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Aditya Birla Nuvo buys Columbian Chemicals for US $875mn
Aditya Birla Nuvo Ltd. (ABNL) announced on Monday that it has acquired US-based carbonblack
manufacturer Columbian Chemicals for US $875mn. The deal would be financed
completely through debt. This deal will make ABNL the largest manufacturer of carbon black
in the world, with a total capacity of about 2mn tonnes per year. Columbian Chemicals has
net revenue of US $1bn, with EBITDA margins of 14.0%, with 11 manufacturing plants
across nine countries. The deal is valued at 6.3x EBITDA and 0.9x sales. In comparison,
Philip Carbon Black, the domestic competitor of ABNL’s carbon black business, is currently
trading at 0.4x and 2.2x its FY2012E EV/Sales and EV/EBITDA. We currently have a Buy on
Philip Carbon Black with a Target Price of `263.

Aditya Birla Nuvo: Key value contributors struggle:: IIFL

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Key value contributors struggle, support cast robust, one-time loss
A profitable 2QFY11 cannot mask ABNL’s concerns from two of its biggest value contributors, Idea
Cellular and life insurance, which are dogged by competition and regulatory pressures, respectively.
Erstwhile loss-making businesses such as BPO and garments have turned the corner, and stable
manufacturing businesses continue to hold up well, but they have little significance to overall
valuation. The company’s financial distribution businesses have borne a one-time loss of Rs1.03bn on
account of “certain trades of their clients”. We expect the holding-company discount to be 30%, and
retain ADD, while our target price of Rs 883 indicates 8% upside on a 12-month basis.

Aditya Birla Nuvo: Diwali Muharat Pick by ShareKhan

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Aditya Birla Nuvo Ltd (erstwhile Indian Rayon and Industries Ltd) is a diversified conglomerate within
Aditya Birla Group. The company was entered into the industry in the year of 1956. It is a foremost player
in most of its business segments, including viscose filament yarn (VFY), carbon black, branded garments,
fertilisers, textiles and insulators. Over the past years, Aditya Birla Nuvo, through its subsidiaries and joint
ventures, has also made successful forays into life insurance, telecom, business process outsourcing (BPO),
IT services, asset management and other financial services, striking a balance between value businesses and
high growth businesses. The all the divisions of the company are ISO 9000 / 14001 certified.

Aditya Birla Nuvo -Good results; valuation upside:: BofA ML

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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).

Aditya Birla Nuvo 2QF11: Strong Growth; Deep Value: Morgan Stanley

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Aditya Birla Nuvo
2QF11: Continuing Strong
Growth Across All Business
Segments; Deep Value Here
Reiterate OW: Our SOTP analysis suggests that a
significant gap exists between the intrinsic value and
current market price of Aditya Birla Nuvo (ABNL). In our
view, investors are deterred by its conglomerate
structure – but we think 2QF11 results depict the true
potential of the ABNL business model. We recommend
accumulating the stock at current levels.
ABNL reported 2QF11 results: Revenue, EBITDA and
net profit were Rs57.5bn, Rs5.7bn and Rs1.97bn
respectively, vs. our estimates of Rs48bn, Rs5.8bn and
Rs1.7bn respectively. Revenue growth was driven by
stronger than expected growth across all business
segments. EBIT growth of 94% was driven by a
combination of 1) continuing profitability of the life
insurance business; 2) strong profitability in the
manufacturing businesses; 3) turnaround in the
garments business; and 4) better absorption of overall
fixed costs.
Life Insurance profitable for two quarters in a row:
Net premium income rose by 24% in 2QF11, driven by
63% growth in renewal premium and a 12% decline in
first-year premiums. New business premium grew by 7%
during April-August 2010, although business was
affected in September 2010 after new insurance
guidelines were issued. The insurance business
remained profitable with reported PAT of Rs200mn vs. a
loss of Rs1.3bn in 2QF10. Profits were driven by a
combination of relatively high persistency, profits arising
from in-force policies, lower new business strain and
better expense management, in our view. According to
management, AUM grew by 37% over the past year.
Adjusted PAT (Rs1.97bn) excludes one-time loss of
Rs1.03bn in Financial Services subsidiaries: Aditya
Birla Money Ltd (80mn) and Aditya Birla Money Mart Ltd
(950mn) booked a loss of Rs1.03bn, owing to certain
trades done for their clients.