Aditya Birla Nuvo Limited

Industry

Rayon

The long-term outlook of VFY is moderate, as demand is expected to grow at a modest rate. Taking this into account, the businesses have chalked out strategic plans towards sustaining volumes and improving realization. All companies have embarked on increasing its share of value-added yarns that give higher realization. Simultaneously, there is a focus on technological improvements to enhance quality. All these efforts will help provide superior customer value and fetch a premium on products. The long-term outlook for the chlor-alkali segment also remains moderate, though realizations may be impacted in the short term.

Carbon Black

Carbon black industry has been facing a rough time with the output of the product exceeding demand. The depressed demand for tyres, source of over 70% of the demand for carbon black, had landed the industry into difficulties. Along with natural rubber, carbon black accounts for more than 80% of the cost of a tyre. It imparts anti-abrasion quality and enhances the tensile strength of rubber. Carbon black is also used in industries such as automotive parts, construction and consumer products. It has applications in printing inks, coatings, electrical cables, plastic films, pipes and sealants. It is used to manufacture dry-cell batteries, electrodes and carbon brushes.

Textiles

India is rapidly becoming a preferred destination for several global brands for sourcing their requirements in the textiles and apparel segment. Thus, the outlook for the industry looks positive.

The outlook on Linen Fabric, in particular, seems to be quite good. Linen is in vogue in domestic as well as export markets. Plans are afoot for opening more exclusive showrooms of Linen Fabric. Thrust on optimum utilization of existing resources, product and design development and penetration in the niche Wool and Worsted segment has been planned.

Insulators

The outlook for the Insulators business is positive with huge investments lined up in the transmission and the distribution segment. The manufacturing business aims to further expand its capacity to capitalize on the strong demand in the sector. Focus on value added products; yield and process improvement would further strengthen the business performance.

Garments

The garment industry in India is betting on technology as one of the major growth factors for the industry. The Indian apparel industry, which took off in the mid 60s, is worth around $15 billion now. The growth over the years has been significant, and technology does have a role to play in that. In fact, the industry has evolved gradually in terms of technology adoption and has reached a critical mass today.

Telecom

The Indian Telecommunications network with 110.01 million connections is the fifth largest in the world and the second largest among the emerging economies of Asia. Today, it is the fastest growing market in the world and represents unique opportunities for companies in the stagnant global scenario. The total subscriber base, which has grown by 40% in 2005, is expected to reach 400 million in 2008.

According to Broadband Policy 2004, Government of India aims at 9 million broadband connections and 18 million Internet connections by 2008. The wireless subscriber base has jumped from 33.69 million in 2004 to 62.57 million in FY2004-2005. In the last 3 years, two out of every three new telephone subscribers were wireless subscribers. Consequently, wireless now accounts for 54.6% of the total telephone subscriber base, as compared to only 40% in 2003. Wireless subscriber growth is expected to bypass 2.5 million new subscribers per month in 2008. The wireless technologies currently in use are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are primarily 9 GSM and 5 CDMA operators providing mobile services in 19 telecom circles and 4 metro cities, covering 2000 towns across the country.

ITeS

The market for domestic ITeS/BPO segment has been estimated at Rs. 3,800 crore in 2005 and is expected to grow at a 52% CAGR to touch Rs. 30,537 crore by 2010, according to a recent IDC-NASSCOM joint study. The domestic ITeS-BPO market is maturing and gaining increasing traction and visibility.The BPO industry, by its very nature is manpower intensive and manpower driven. Therefore, workflow management is a key issue, which faces ITeS-BPO companies. Information Technology solutions play a key role in streamlining workflow processes and workplace issues.In fact, the genesis and growth of the Indian outsourcing industry is largely dependent on the advent of cheap, high-speed voice and data communication telecom links, as well as enabling technologies in the workplace.

So, while the growth story of the Indian ITeS-BPO industry is well charted, what the industry needs to do on a priority basis is to put its best brains together and evolve a mechanism to address the key issues of - recruiting, retaining and nurturing the best talent, working with industry bodies like NASSCOM and the Ministry of Communications and IT (Govt. of India) to formulate and codify India’s IT security laws and best practices, and generate greater awareness on adoption and deployment of enabling technologies.

Financial Services

Market conditions are favouring the Asia/Pacific financial services industry. Financial Insights predicts significant growth in key financial sectors like wealth management, retail banking, private banking, and corporate banking. Sentiment is high, prospects look good, and there is a sense of optimism within the industry.

Software

According to National Association of software and Services Company (NASSCOM), the Indian IT software and services sector fetched revenues of US$29.6 billion in the year 2005 and will achieve the milestone of US$ 60 billion in exports by 2010.     

According to a NASSCOM-McKinsey report, annual revenue projections for India’s IT industry in 2008 are US$ 87 billion and market openings are emerging across four broad sectors: IT services, software products, IT enabled services and e-businesses thus creating a number of opportunities for Indian companies. IT exports will account for 35 percent of the total exports from India. By 2008, there is a potential for 2.2 million jobs in IT. IT industry will also attract Foreign Direct Investment (FDI) of US$ 4-5 billion. Software and Services will contribute over 7.5 percent of the overall GDP growth of India Propelled by strong demand from Western clients; the Indian software services industry’s revenues expanded 30.7% in March’07 to US$39.6.

Company Background

Aditya Birla Nuvo Limited, through its subsidiaries and joint ventures, operates in the asset management, business processing outsourcing (BPO), carbon black, fertilizers, financial services, garments, insulators, information technology (IT) services, insurance, telecom, textiles, and viscose filament yarn sectors. The company designs, develops, and sells investment products; and offers investment management and customer services. Its BPO services include inbound and outbound, mail/chat, Web-based, transaction processing, financial accounting, and human resource services for the financial, telecom, technology, and hospitality sectors.

Aditya Birla Nuvo also provides carbon black, which is used in the manufacture of tyres, as well as in rubber auto components, printing inks, paints, plastics, and conveyor belting; manufactures urea, a nitrogenous fertilizer, as well as pesticides and Argon gas; and offers retail asset finance, corporate finance, capital market, and syndication services.

In addition, it provides various readymade men’s and women's wear, and accessories; manufactures high voltage porcelain insulators; and provides IT services, including application/product development, enhancement, maintenance, migration/re-engineering, and QA/testing to customers in the banking, insurance, retail, and software/high tech industries. Further, Aditya Birla Nuvo offers life insurance products and services; GSM mobile services; various types of flax yarns, worsted yarns, synthetic yarns, linen, flame retardant fabrics and other fabrics; and viscose filament yarn, a textile raw material used by the manufacturers of apparel, saris, upholstery, and suit linings.

The company was incorporated in 1956 as Indian Rayon Corporation, Ltd. and changed its name to Indian Rayon And Industries Limited in 1987. Further it changed its name to Aditya Birla Nuvo Limited in 2005. Aditya Birla Nuvo is based in Veraval, India.

Financials

Aditya Birla Nuvo Ltd posted a net profit of Rs 84 crore for the quarter ended December 31, 2007 where as the same was at Rs 52.71 crore for the quarter ended December 31, 2006. Total Income is Rs 1099.37 crore for the quarter ended December 31, 2007 where as the same was at Rs 883.18 crore for the quarter ended December 31, 2006.

The consolidated Results are as follows:

The group has posted a net profit (after minority interest) of Rs 30.17 crore for the quarter ended December 31, 2007 where as the same was at Rs 55.34 crore for the quarter ended December 31, 2006. Total income is Rs 3678.83 crore for the quarter ended December 31, 2007 where as the same was at Rs 2324.62 crore for the quarter ended December 31, 2006.a) On receipt of requisite approvals on August 08, 2007 the Scheme of Amalgamation of the wholly owned Subsidiary of the Company, Aditya Birla Insulators (ABIL), with the Company had become effective with effect from the Appointed Date i.e., April 01, 2007. Accordingly, as on the Appointed Date, the financials of ABIL have been incorporated in the books of the Company.b) AV TransWorks Ltd, Canada, a Subsidiary of the Company has completed the acquisition of Minacs Worldwide Inc., Canada on August 17, 2006.

Valuation

At the current market price, the stock trades at a price/ earnings ratio of 26.2x FY2009E consolidated earnings and enterprise value/EBIDTA of 12.8x FY2009E. Given the diverse businesses, the company is best valued using the sum-of-parts method. Based on the sum-of parts valuation, the fair value of ABN to be Rs 2200 per share. Out of the above telecom, insurance and BPO are the major contributors.

Outlook

Investors can consider taking fresh exposures in the Aditya Birla Nuvo stock at current price levels. The company is a solid proxy on the three high growth themes of telecom, insurance and IT/BPO.

Based on a sum-of-the-parts valuation, these three themes impound nearly 85 per cent of the overall value of Aditya Birla Nuvo, with Idea Cellular, the mobile venture of the group, cornering a sizeable chunk.The listing of Idea Cellular, in which Aditya Birla Nuvo holds a 31.8 per cent equity stake, has imparted greater clarity to the valuations of the latter. Idea Cellular accounts for over 70 per cent of the current market value of Aditya Birla Nuvo. With 14 million subscribers and 11 per cent market share, Idea is well positioned to capitalise on a multi-year mobile expansion story.As an original licensee in seven out of 11 circles that it operates in, it enjoys strong market presence in key circles such as Haryana, Maharashtra, Andhra Pradesh, Gujarat and Uttar Pradesh (West). This is likely to sustain its growth momentum in the coming quarters.

The recent three-year contract signed with Ericsson for GSM expansion and a 10-year pact signed with IBM to transform Idea's business processes and IT infrastructure are encouraging. While it is set to roll out services in Mumbai and Bihar, it has also applied for licences in the remaining 10 circles to become a Pan-India player. The availability of spectrum for new circles, timely project execution and high debt exposure remain the principal risks relating to the mobile venture.

Birla Sun Life Insurance, in which Aditya Birla Nuvo has a 74 per cent equity stake, accounts for about 10 per cent of the market value. Though insurance is a loss-making operation, it has already started making investments in opening new branches, enhancing the agency network and introducing new products to wean away market share from the incumbent.

Finally, TransWorks/Minacs, the BPO venture has the scale to yield good returns in the coming years.To sustain investments in these high growth businesses, Aditya Birla Nuvo has presence in fairly stable and mature businesses such as rayon, textiles, fertilisers, carbon black and insulators that can generate the requisite cash flows.