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November 12, 2014
Index
Stock Update >> Aditya Birla Nuvo
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investor’s eye
stock update
Aditya Birla Nuvo
Reco: Buy
Stock Update
Strong performance; Maintain Buy
Key points
Company details
Price target:
Rs2,000
Market cap:
Rs23,630 cr
52 week high/low: Rs1,827/1,030
NSE volume:
(no. of shares)
2.0 lakh
BSE code:
500303
NSE code:
ABIRLANUVO
Sharekhan code:
ABIRLANUVO
Free float:
(no. of shares)
5.6 cr
Shareholding pattern
Public & Others
10%
Foreign
19%
Institutions
12%
Non-promoter
corporate
3%
Promoters
56%
Price chart
1800
1600
1400
1200
Nov-14
Sep-14
Jul-14
May-14
Mar-14
1000
Jan-14
Aditya Birla Nuvo Ltd (ABNL)’s Q2FY2015 result is not directly comparable on a
Y-o-Y basis, as the last year’s performance included ITES business, which was
sold off in May 2014. Excluding the impact and on a like-to-like basis, the
overall performance was very healthy with a revenue growth of 15% YoY. Led by
efficiencies in business verticals, the overall operating profit grew by 34% YoY,
while the net earnings grew surged by 75% on a Y-o-Y basis. On a reported basis,
the revenue grew by 1.6% YoY; while operating profit and the net earnings grew
by 26% and 56% respectively.
The company sounded confident on its non-banking finance business and
continues to nurture its plans to grow the loan book size. It has forayed into the
housing finance business and has started lending; further, the company has also
entered into the health insurance business. On the life insurance vertical, it
sounded positive on the product portfolio front and expects revival in the business
with revival on the macro economy front, while on the lifestyle segment it has
mentioned that the competitive intensity has increased and 2HFY2015 would
remain challenging for the overall lifestyle-led businesses.
ABNL’s strong positioning in each of its business verticals it operates in (life
insurance, telecom, lifestyle and asset management), along with its quest for
profitable growth and attractive valuation which makes us maintain our Buy
rating on the stock with a price target of Rs2,000 (arrived using sum-of-theparts approach valuing each business vertical).
Results (consolidated)
2000
Nov-13
CMP: Rs1,816
Price performance
(%)
1m
3m
6m 12m
Absolute
6.5
22.5
56.4
43.2
Relative
to Sensex
0.3
11.8
27.2
3.5
Rs cr
Particulars
Q2FY15
Q2FY14
YoY %
Q1FY15
QoQ %
Total income from operations
6,597.3
6,492.6
1.6
6,207.1
6.3
Total expenditure
5,187.8
5,362.5
-3.3
5,009.0
3.6
Operating profit
1,409.5
1,130.1
24.7
1,198.2
17.6
Other income
107.0
73.2
46.2
74.6
43.4
Interest
420.0
356.6
17.8
408.8
2.7
Depreciation
381.8
384.1
-0.6
405.0
-5.7
PBT
714.7
462.6
54.5
459.0
55.7
Tax
236.9
155.3
52.6
167.6
41.4
Adjusted PAT after MI
452.1
290.1
55.8
277.0
63.2
34.8
24.1
OPM (%)
21.4%
17.4%
396 BPS
19.3%
206 BPS
PATM (%)
7.2%
4.7%
251 BPS
4.5%
276 BPS
33.2%
33.6%
-41 BPS
36.5%
-336 BPS
EPS
Tax rate (%)
Sharekhan
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Valuations (stand-alone)
Particulars
Segmental performance (consolidated)
FY12
FY13
FY14
Revenues (Rs cr)
8675.3
9595.2
8338.4
Net profit (Rs cr)
426.6
423.1
484.7
538.3
584.2
Shares in issue (Cr)
11.4
13.0
13.0
13.0
13.0
Adj. EPS (Rs)
32.8
32.5
37.3
41.4
44.9
12.4
-0.8
14.6
11.1
8.5
55.3
55.8
48.7
43.9
40.4
500.2
527.1
548.0
589.4
634.3
3.6
3.4
3.3
3.1
2.9
32.0
30.4
26.9
24.5
22.2
RoCE (%)
8.1
8.2
8.7
8.7
8.8
RoNW (%)
7.5
6.2
6.8
7.0
7.1
Growth YoY (%)
PER (x)
Book value (Rs)
P/BV (Rs)
EV/EBIDTA (x)
FY15E
Particulars
FY16E
9237.3 10260.1
Segment revenue
Branded apparels
1,543
and accessories
Rayon yarn
232
Insulators
150
Other textiles (spun
351
yarn & fabrics)
Fertilisers
779
Financial services
627
Life insurance 1,149
premium income
Telecom
1,769
Total revenue
6,597
Segmental PBIT
Garments
126.3
Rayon yarn
46.7
Insulators
23.5
Other textiles
36.2
Fertilisers
63.3
Financial services
130.1
Life insurance
97.3
IT and ITES
Telecom
306.7
Total segmental PBIT 830.0
PBIT margin (%)
Garments
8.2
Rayon yarn
20.1
Insulators
15.6
Other textiles
10.3
Fertilisers
8.1
Financial services
20.8
Life insurance
8.5
Telecom
17.3
Key result highlights
Excluding ITES business; the topline grew at a 15%
YoY-On a reported basis, ABNL posted a 1.6% year-onyear (Y-o-Y) growth in the revenues. The results are
not directly comparable as the same quarter last year
had full revenue of the information technology enabled
services (ITES) business, which was sold in May 2014.
Thus, excluding the ITES business performance, the
consolidated topline grew at a 15% on a Y-o-Y basis.
On the business performance front, growth was
witnessed across verticals. The company’s financial
services business was a star performer for the quarter,
posting a 40.5% growth on a Y-o-Y basis.
Operating efficiencies led to margin expansionDecent revenue performance coupled with efficiency
gain from employee cost and other expenditure
resulted in 24.7% Y-o-Y growth in the consolidated
operating profit. Consequently the operating profit
margin (OPM) also improved by a strong 396 basis
points (BPS) on a Y-o-Y basis from 17.4% in Q2FY2014
to 21.4% in Q1FY2015. Adjusting for its ITES business,
the overall operating profit grew much stronger at
34% on a Y-o-Y basis.
Blended
12.6
Q2
FY14
YoY
%
Q1
FY15
QoQ
%
1,303
18.5
1,155
33.6
213
116
311
8.7
29.3
12.7
212
87
375
9.4
73.0
-6.4
664
446
1,083
17.2
40.5
6.1
564
588
1,068
38.2
6.5
7.6
1,596
6,493
10.8 1,879
1.6 6,211
-5.9
6.2
72.2
43.0
13.4
30.3
39.9
81.3
74.6
43.6
225.4
623.8
75.0
(6.6)
8.6
42.9
75.3
2.5
19.3
44.2
58.5
18.6
60.0 124.7
30.4
82.6
-100.0 (16.5)
36.1 337.4
33.1 629.7
NA
8.8
851.8
-18.2
240.2
4.3
17.9
-100.0
-9.1
31.8
5.5
20.1
11.5
9.7
6.0
18.2
6.9
14.1
264 BPS
-3 BPS
410 BPS
57 BPS
211 BPS
253 BPS
158 BPS
321 BPS
(0.6) 876 BPS
20.2 -10 BPS
2.8 1,279 BPS
11.8 -148 BPS
3.3 483 BPS
21.2 -44 BPS
7.7
74 BPS
18.0 -61 BPS
9.6 297 BPS
10.1 244 BPS
Key result positives
Strong operating performance reported by all the
business segments with the strongest growth reported
by the financial services business, which grew by 40.5%
on a Y-o-Y basis.
Margin improvement was witnessed across all the
segments barring Rayon yarn, with highest
improvement from the insulators (+410BPS) followed
by financial services (+253BPS Y-o-Y).
Adjusted earnings grew 75% YoY-On the back of a
strong operational performance coupled with
reduction in the depreciation expense (depreciation
down 1.5% YoY on account of disposal of its ITES
business), the reported earnings grew at a 55.8% on
a Y-o-Y basis, while the adjusted earnings grew at a
75% on a Y-o-Y basis.
Sharekhan
Q2
FY15
(Rs cr)
Aided by the receipt of fertiliser subsidy, the net debt
position of the company improved, leading to reduction
in debt from Rs3,200 crore in June to Rs2,450 crore as on
September, while the net debt to earnings before interest,
tax, depreciation and amortisation (EBITDA) improved to
1.9x (annualised for 1HFY2015) from 2.6x in FY2014.
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Strong operational performance rebound seen in the
Pantaloons business, wherein the revenue grew by
13.5% on a Y-o-Y basis led by 8.9% same-store sales
growth, while the operating profit grew manifold from
Rs5 crore to 31crore in Q2FY2015.
Business-wise performance
Life insurance business
The net premium income grew by 3.2% on a Y-o-Y basis,
led by a 9.5% growth in the renewal premium. While
the new business premium declined by a 12% on a
Y-o-Y basis.
Key result negatives
Life insurance business profitability continues to
deteriorate due to change in the product mix.
Share of non-unit linked insurance plan (ULIP) products
in individual business increased from 57% in Q2FY2014
to 61% in Q2FY2015, while PAR products accounted for
a 38% of the individual new business.
Key management comments
Guided for ~ Rs400 crore capex for FY2015 on a
stand-alone basis-The management guided for a
capital expenditure (capex) of Rs400 crore for FY2015,
which it stated that it would be largely spend for the
distribution and expansion of Madura stores (plans to
add 200-250 stores annually), along with its capacity
expansion in the Rayon and the textile business.
Asset management business
ABNL’s asset management company (AMC) outgrew
industry and reported a 27% Y-o-Y growth in its assets
under management (AUM) to reach over Rs1 lakh crore.
ABNL’s share in the industry improved from 5.5% in
Q2FY2014 to 6.55% in Q2FY2015. It ranks 5th in terms
of domestic equity AUM.
Pantaloon’s business may take around two years to
reach industry level margins and returns-The Madura
garments’ business has been growing very strong, with
7-8% same-store sales growth in a challenging
environment, displaying the brand strength. For the
Pantaloons business, the management believes that
the transition in terms of organisation restructuring
has been done in FY2014, while FY2015 would be the
time to lay strong foundation for strengthening and
communicating the brand values and identity with the
consumers which the company is strongly undertaking.
Other financial services business
ABNL entered into the housing finance business, while
it is all set to enter the health insurance business, and
has signed a Memorandum of Understanding (MoU) with
a South African company.
The non-banking business loan book grew by 63% on a
Y-o-Y basis. It currently is Rs13,550 crore with 27% of
the lending towards capital market. The management
aims to continue to grow this business.
Focus on the NBFC business to continue-The
management in the conference call sounded positive
about the non-banking financial company (NBFC)
business and is confident of the growth in other financial
services namely the mortgage and the capital market,
as their portfolio is well diversified. The management
has also deployed better manpower in the segment and
hence is positive of scaling up and growing its lending
book. It has ventured into housing finance and is also
entering the health insurance business.
Madura business
Madura business posted a good show despite
challenging business environment. The topline/EBITDA
and earnings before interest and tax (EBIT) grew at a
25.1%, 36.4% and 51.6% year on year (YoY) respectively.
Madura continues to enjoy star performance in the
industry with its annualised return on capital employed
at 33%.
Pantaloons business
Life insurance business to witness revival in FY2015On the life insurance business, it stated that despite
the challenging environment, the company was able
to grab a market share in the industry. Further, now it
has a stable product offering coupled with a revival in
the macro economy front. The overall industry is
expected to witness growth.
Sharekhan
Marked improvement was witnessed in the
performance of the Pantaloons business, wherein the
revenue grew by 13.5% on a Y-o-Y basis, while the
operating profit increased over five fold from Rs5.1
crore in Q2FY2014 to Rs31 crore in Q2FY2015.
It incurred a capex of Rs20 crore, while the full year’s
capex guidance is Rs150 crore.
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It plans to add 18-20 stores to reach a mark of 100
stores. For the quarter, it has refurbished 21 stores
through infrastructure and assortment upgrade.
realised voice revenue per minute stood at 36.2 paise
as against 37.1 paise in Q1FY2015.
Idea Cellular continues to post strong execution skills
coupled with the stabilising competitive environment
that keeps us to be positive on the vertical.
Telecom business
Q2FY2015 was seasonally a soft quarter for the telecom
service providers. It typically witnessed a topline decline
owing to traffic contraction on a sequential basis and
reported a decent 0.1% quarter-on-quarter (Q-o-Q)
growth in the revenue on the back of improvement in
the blended realisation by 1.8% quarter on quarter (QoQ)
(from 45.1 paise in Q1FY2015 to 45.9 paise in Q2FY2015).
Though the traffic growth declined by 1.7% QoQ, the
decline was less pronounced than the earlier periods in
FY2014 and FY2013, where the volume contracted by
5.8% and 4% sequentially in the Q2.
Manufacturing business
Agricultural business–Agricultural business posted a
strong 17.2% Y-o-Y growth in the revenue, while the
EBIT grew by 58.5% on a Y-o-Y basis. Aided by receipt
of subsidy amount from the government the working
capital improved.
Rayon business–New Superfine yarn capacity is driving
profitable growth in viscose fibre yarn (VFY) segment
partly offset by lower electro chemical unit (ECU)
realisation in the chemical segment.
Data was the prime reason for the growth in the
blended realisation and hence the overall growth for
the company. All the key indicators for data showed
strong traction (viz-data realisation +0.8% QoQ, data
volume growth; +21.3% QoQ and overall data revenue
grew strong at a 14.9% QoQ).
Insulators-Volume growth was majorly on account of
spill over of contracts due to disruption/suspension of
plant operations in Q1. Improved product mix in
substation segment and pass-through of rise in costs
led to an increase in realization.
The only weakness in the revenue performance was a
sequential 2.4% decline in the voice realised rate. The
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