Aditya Birla Nuvo

ENAM Securities Direct 18

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May 2012
ENAM DIRECT
EQUITY RESEARCH
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For private circulation only
Consolidating Growth Businesses
ABNLs Q4 performance was led by growth businesses whereas
manufacturing businesses were impacted by lower volume growth
and cost pressures due to high inflation. This quarter, ABNL has
taken the following key steps to strengthen its growth businesses:
(a) proposed acquisition of controlling stake in Pantaloons format
and (b) Rs 15 bn equity infusion through preferential allotment to
promoters (over next 18 months, 25% inflow in Q1FY13); part of
which would help NBFC business grow (~25% growth in loan book
in Q4).
SoTP revised downwards due to Telecom and equity dilution:
Our valuation multiple for Idea is revised downwards (Idea TP
reduced by 40% to Rs 63) to incorporate regulatory overhang and
TRAIs proposals on spectrum pricing. Incorporating 15% dilution
from preferential allotment, our revised SoTP* stands at Rs 1,173
(Rs 1,435 earlier), implying 60% upside from CMP of Rs 734.
Maintain BUY.
Segmental Evaluation: Key Growth Businesses
Birla Sun Life Insurance (BSLI): Business growth was in line
with our estimate for life insurance business. Group insurance
business (up 18% YoY in Q4) cushioned new business premium
(down 7% YoY). Group business share in NBP increased to 35%
in FY12 (20% in FY11) which is likely to impact NBAP margin.
We maintain our estimate of 10% YoY NBP growth and 16%
NBAP margin for FY13.
ABNL has proposed to acquire controlling stake in Pantaloons
format business. Its presentation highlighted EV of Rs 26bn
implying 1.5x FY12 EV/ Sales.
Madura (F&L): RoCE improved to 21% (11% in FY11) as growth
was driven by retail channel (accounts for 47% of revenue and
growing at 29% YoY, higher than 22% for the segment) and
working capital efficiencies. We expect Revenue/ EBITDA
CAGR of 16%/29% over FY12-14E.

CMP (Rs) 734
Target price (Rs) 1,173
Potential upside 60%
Stock data
No. of shares (mn) 114
FV (Rs) 10/-
Market cap (Rs bn) 86.5
52 week high/low (Rs)
1,029/710
Avg. daily vol.* (shares)
105,500
BSE Code
500303
NSE Code ABIRLANUV
Bloomberg code ABNL IB
Reuters Code ABRL.BO
* BSE & NSE 6 monthly
Shareholding (%)
Mar-12 QoQ Chg
Promoter 51.1 0.0
FIIs 19.3 0.2
MFs / UTI
1.9 0.3
Banks / FIs
9.8 (0.3)
Others
17.9 (0.2)
* Our SoTP excludes impact of proposed
acquisition of controlling stake in
Pantaloons format business.
Price performance
6 0
8 0
1 0 0
1 2 0
1 4 0
Apr - 1 1 O c t - 1 1 Apr - 1 2
S ensex ABN L

Source: Cline, ENAM Research
Financial summary
Y/E Mar
Sales Adj. PAT Consensus EPS Change P/E RoE RoCE EV/EBITDA
(Rs mn) (Rs mn) EPS* (Rs) (Rs) YoY (%) (x) (%) (%) (x)
2011 181,678 8,221 - 72 383 - 13.1 12.0 -
2012 215,925 9,940 - 87 20 - 13.5 12.4 -
2013E 252,402 11,656 85 89 2 8.2 12.7 13.0 5.2
2014E 281,205 13,804 103 106 18 6.9 12.3 13.2 4.7
Source: *Consensus broker estimates, Company, ENAM estimates; Note: EPS of FY13/ FY14 lower as the promoters infusion of Rs
15 bn equity at ~Rs 910/sh would result in 131 mn diluted shares vs. 114 mn in FY12




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Results update
Quarter ended 12 months ended
(Rs mn) Mar-12 Mar-11 % Chg Dec-11 % Chg Mar-13E Mar-12 % Chg
Net Sales 59,939 52,571 14.0 57,201 4.8 252,402 215,925 16.9
EBITDA 7,752 7,388 4.9 7,647 1.4 36,027 29,504 22.1
Other income 872 410 112.9 712 22.4 2,474 3,087 (19.9)
PBIDT 8,624 7,797 10.6 8,359 3.2 38,501 32,591 18.1
Depreciation 2,814 2,556 10.1 2,767 1.7 13,200 10,923 20.8
Interest 2,549 1,412 80.5 2,025 25.8 8,721 8,368 4.2
PBT 3,261 3,829 (14.8) 3,567 (8.6) 16,580 13,301 24.7
Tax 221 485 (54.5) 784 (71.8) 3,648 2,160 68.9
Minority Interest 299 402 (25.6) 260 15.1 1,277 1,200 6.4
Adjusted PAT 2,742 2,942 (6.8) 2,524 8.6 11,656 9,940 17.3
Extra ordinary income/ (exp.) 1,039 0 - 0 - 0 (1,039) -
Reported PAT 1,703 2,942 (42.1) 2,524 (32.5) 11,656 8,902 30.9
No. of shares (mn) 114 114 - 114 - 131 114 -
EBITDA margin (%) 12.9 14.1 - 13.4 - 14.3 13.7 -
PBIDT margin (%) 14.4 14.8 - 14.6 - 15.3 15.1 -
EPS - annualized (Rs.) 96.6 103.7 (6.8) 88.9 8.6 89.3 87.1 2.5
Source: Company, ENAM Research
SoTP (excluding impact of proposed acquisition of controlling stake in Pantaloons format)
(Rs mn) Valuation
basis
ABNL's
stake
Stake's
Equity Value
Stake's
EV
Hold-Co
Discount
Total Equity/ EV
Growth Businesses (A) 159,310
Financial Services
Birla Sun Life Insurance 14x FY14E NBAP 74% 67,195 20% 53,756
Birla Sun Life AMC 4% of Mar-12 AUM 50% 12,892 20% 10,313
NBFC 1.4x FY12E BV 100% 8,792 20% 7,034
Madura F&L 1x FY14E EV/Sales 100% 29,922 29,922
Telecom 5.8x FY14E EBITDA 25% 52,870 20% 42,296
BPO 0.7x FY14E Sales 100% 15,989 15,989
Value Businesses (B) 48,416
Manufacturing 5x FY14E EBITDA 100% 48,416 48,416
Less: Net Debt ^ (C) 37,500 37,500
Total Equity Value (A+B-C) 170,227
No. of share Post dilution 131
Per Share Value 1,303
Conglomerate Discount 10%
Final Per share value 1,173
Source: Company, ENAM Research; Note^: We now incorporate equity infusion by promoters to the tune of Rs 15 bn
in FY13E at Rs 910 (diluted no. of shares at 131 mn vs. 114 mn earlier). This also reduces net debt by Rs 15 bn




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Segmental Evaluation
(Rs mn) Revenues PBIT Remarks
Mar-12 Mar-11 % YoY Mar-12 Mar-11 % YoY
Life Insurance 17,172 17,675 (3) 1,170 1,511 (23)
Growth in-line with estimates;
mainly led by group insurance
business.
Other financial
services
2,041 1,297 57 195 59 229
Mutual fund AUM continues to
decline. Revenue growth was
led by 84% YoY growth in loan
book of NBFC.
Madura Garments 5,755 4,776 21 427 35 1,128
Led by 234 EBOs launched in
FY12 and higher growth in
retail channel.
Idea Cellular 13,468 10,735 25 1,710 1,111 54
Strong volume (total MoU)
growth at 22% YoY and increase
in RPM at 4% YoY. We expect
Revenue/ EBITDA CAGR of
19%/ 22% over FY12-14E,
majorly driven by volume
growth
IT / ITeS 5,736 4,694 22 383 436 (12)
Favourable currency movement
(INR depreciated 11% YoY
against USD), growth in
existing accounts and new
order wins. AB Minacs is
generating steady cash profits
to fund its Capex and Working
Capital
Total Growth Bizs
(A)
44,172 39,177 13 3,884 3,151 23
Fertilisers 5,307 3,357 58 242 398 (39)
Growth primarily driven by
trading in imported fertilizers
and increase in sales of seeds
and agro chemicals
Carbon Black 5,013 4,645 8 343 587 (42)
Muted revenue growth due to
lower off-take. Higher RM
prices affected margin. ABNL is
in talks with govt. to address
the issue of Chinese imports
which have been affecting the
sales
Rayon 1,749 1,623 8 309 240 28
Volume growth mainly from
exports and ECU/ VFY
realisations trending up. Expect
a steady 10% CAGR on top-line
with margin being maintained
at the current level
Textiles 2,612 2,053 27 252 162 56
Realizations improved across
segments and domestic
leadership has been
strengthened. Working capital
management led to Textiles
segment posting highest ever
RoCE of 82%.
Continued..




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(Rs mn) Revenues PBIT Remarks
Mar-12 Mar-11 % YoY Mar-12 Mar-11 % YoY
Insulators 1,235 1,497 (17) 57 323 (82) Revenue impacted by low cost
Chinese imports. Increase in
production costs impacted
margins. Insulators segment is
a function of Capex cycle
recovery and hence, due to
weak macro, we forecast
muted Revenue/ PBIT growth
in FY12-14
Total Mfg Bizs (B) 15,916 13,175 21 1,202 1,711 (30)
Total (A+B) 60,089 52,352 15 5,087 4,862 5
Source: ENAM Research




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