Hold Aditya Birla Nuvo; target of Rs 960: Sharekhan

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Hold Aditya Birla Nuvo; target of Rs 960: Sharekhan

Sharekhan has maintained hold rating on Aditya Birla Nuvo (ABN) with a revised target price of Rs 960 in its June 2, 2011 research report.

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Sharekhan has maintained hold rating on Aditya Birla Nuvo (ABN) with a revised target price of Rs 960 in its June 2, 2011 research report.

"Aditya Birla Nuvo (ABN) has reported robust results on a consolidated basis (revenue up 15.1% year on year [YoY] for Q4FY2011, margins at 11.2% and earnings up 175% YoY), led by a swing in the life insurance, branded apparel and business process outsourcing (BPO) businesses. The manufacturing business (of carbon black, rayon, textiles and agri) reported a decent performance on the revenue front while the margin in certain segments contracted owing to an increase in the pricing pressure on the raw material front."

"The consolidated results for Q4FY2011 and thereby that for FY2011 do not include the performance of Idea Cellular (Idea) as Idea has yet to declare its results. The consolidated total income from operations (ex-Idea) for the quarter grew by 15.1% YoY while the profit after tax (PAT) improved significantly from Rs96 crore in Q4FY2010 to Rs264 crore in the current quarter. The sharpest swing was seen in the life insurance business, of Rs730 crore. From a loss of Rs 378 crore the segment reported an operating level profit of Rs352 crore for the quarter, followed by the BPO and lifestyle businesses that showed a year-onyear (Y-o-Y) swing of Rs34 crore and Rs20 crore respectively at the profit before interest and tax (PBIT) level. In the post-results conference call, the management clarified its stance that it is not looking at selling its stake in Idea, given that Idea is on a strong footing. Further, despite certain medium-term hiccups, it reiterated its positive stance and outlook (growth at 20-22%) on the insurance business. On the branded apparels and lifestyle business, the store expansion momentum continues to be strong with robust same-store sales performance."

"Given the diverse businesses of ABN, the company is best valued using the sum-of-the-parts (SOTP) method. In the wake of the better than expected margin and efficiency of the insurance business, we have raised our new business achieved premium (NBAP) margin multiple for the insurance segment from erstwhile 16% to 18% for FY2012 with an assumption of a 15% growth in the new business premium (on the back of a 29% decline reported by the company in FY2011). Further, with the company for the first time reporting net worth for the consumer finance business, we incorporate the same at 1x its book value. Thus, the revised SOTPbased price target works out to Rs960 and we continue with our Hold recommendation on the stock," says Sharekhan research report.

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