Aditya Birla Nuvo looks undervalued, says Rajen Shah

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Aditya Birla Nuvo looks undervalued, says Rajen Shah

Aditya Birla Nuvo is looking highly undervalued, says Rajen Shah, Angel Broking.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by Rajen Shah See what other Experts & Brokerages are saying about AdityaBirlaNuvo See messages about AdityaBirlaNuvo

Aditya Birla Nuvo is looking highly undervalued, says Rajen Shah, Angel Broking.

Shah told CNBC-TV18, "Aditya Birla Nuvo is being given step-motherly treatment by the market. Four years back when the Sensex peaked out at above 21,000 in January 2008, Aditya Birla Nuvo was quoting at about Rs 2,100-2,200. Today we are at 18,000 and the stock is at Rs 850. I am not saying that the valuations, which it got in 2008 January of Rs 2,100 was fair. It was grossly overpriced at that point of time."

He further added, "I believe that the price of Rs 850 today is also grossly undervalued. Over the past four years, Aditya Birla Nuvo's revenue has doubled and profitability has gone up four times. This year in the first nine months it has reported about 23% top-line growth and 36% bottom-line growth. The management expects this trend to continue in the coming years. This year based on this nine month number, we expect an EPS of Rs 85."

"Now add a PE of 12-13, the stock is worth Rs 1,100-1,200. I feel that it deserves PE of 20, the reason is Kumar Mangalam Birla has mentioned in last two years annual report, group's revenues are going to double by 2016. Aditya Birla Nuvo is going to contribute significantly to both top-line and bottom-line. In that case, we are talking about a 20% kind of growth. At a PEG of 1, the stock is worth about Rs 1,600-1,700."

"Aditya Birla Nuvo is basically into variety of businesses. They have Aditya Birla Financial Services which is into Birla Sunlife Insurance and Birla Sunlife Asset Management. It has also got NBFC, PE, wealth management and equity broking, which are small businesses. It is into Idea Cellular and hold 25% stake in that company. It is into IT. It is into lifestyle and garment businesses. It is into manufacturing of insulators, fertilizers, textile, rayon and carbon black."

"If you do the sum of part valuations, based on the price which Reliance Capital got for its life insurance and asset management stake sell, Aditya Birla Nuvo's financial services could be easily valued at about Rs 7,500 crore. They hold 25% in Idea Cellular which is about Rs 7,500 crore. So, Rs 7,500 crore of financial business and Rs 7,500 crore of its investment in Idea Cellular adds to Rs 15,000 crore."

"Just making a like to like comparison, Zodiac is getting about one time sales. The lifestyle and garment business of Aditya Birla Nuvo is about Rs 2,000 crore. Even if give 0.5, it is about Rs 1,000 crore. If you give IT business 0.5 time sales, most of IT companies are trading at that kind of valuations that comes to another Rs 1,000 crore. Give the total manufacturing business of Rs 6,000 crore, which includes insulators and carbon black. We compared with Phillips Carbon. If you give its fertilizer, textile and rayon business valuation of Rs 3,000 crore, the total value of all the businesses works out to Rs 18,000-19,000 crore."

"If you take Rs 7,000 crore out of that, the intrinsic value of Aditya Birla Nuvo works out about Rs 12,000 crore, whereas the market cap is about Rs 9,500 crore. So it's basically quoting at below its replacement value. Over the next four years we are going to see spectacular growth in the Kumar Mangalam Group Companies."

"From all parameters, this stock looks highly undervalued. The stock is an emotionless stock because when we touched 21,000 this time in November 2010, it was at Rs 850. When we touched 15,000 in the panic in December last year the stock was at Rs 850 and today also the stock is at Rs 850. The stock is grossly undervalued and needs a serious re-rating."