Active TopicsActive Topics  Display List of Forum MembersMemberlist  CalendarCalendar  Search The ForumSearch  HelpHelp
  RegisterRegister  LoginLogin

Emerging companies - Mid caps that can become large cap
 The Equity Desk Forum :Investment Ideas - Creating winning portfolios! :Emerging companies - Mid caps that can become large cap
Message Icon Topic: Aditya Birla NUVO-A diversified play! Post Reply Post New Topic
Page  of 37 Next >>
Author Message
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Topic: Aditya Birla NUVO-A diversified play!
    Posted: 09/Sep/2006 at 1:05am

AV Birla NUVO –Value of embedded businesses are twice the market cap

Aditya Birla Nuvo (CMP Rs 836) is a classic play on the Indian emerging sector theme . The company holds interests in businesses like Insurance, Telecom, Branded clothing and Asset management.

 

The company is overly diversified into a set of old and new businesses. Since the growth in new businesses is stronger then the growth in old businesses the share of the old business is coming down.

 

Year

2005

2006

2009(E)

Share of Revenue from old businesses, Rayon, Carbon black Textile, Fertilizers, insulators

52%

56%

75%

 

48%

44%

25%

 

Financial Synopsis

Market  Price

Rs 836

Market cap

Rs 6977 crores

Sales FY 06

Rs 4830.34 crores

EPS Fy 06

Rs 24.44.

Sales FY 07 Q1

Rs 1500.38 crores

EPS Fy 07 Q1

Rs 7.76

PE

26.35

Book Value

Rs 364.67

RoE

6.7%

Dividend

Rs 5.00  per share

There is nothing to write about AV Birla NUVO’s financials. The company is sitting on a clutch of income streams that are yet to materialize. The best part about AV Birla Nuvo is its RoE. At less then 7% people would discard it but that is the opportunity. Most of its new businesses like telecom and insurance are yet to reach scale. With continuing thrust on these divisions the company is available at a very steep discount to what it could be had these businesses been split up.

 

I have tried to discuss the newer business since that is the growth engine. The company is a growth cum value play. We shall see as we get along.

 

Telecom:

 

n        AV Birla Nuvo holds 35.74% stake in Idea Cellular Limited.

n        Idea Cellular Limited is a profit making cellular company operating in eight telecom circles.

n        Idea has a 8.1% market share circles with a subscriber base of over nine million.

n        Expected rollout at 3 new circles this would increase its presence to 11 circles.

n        The company recently completed an acquisition for 15% of Idea at Rs 1372 crores.

 

Now if we compare this value in Idea to the listed telecom player “Bharti Airtel”. The numbers that I get are mind boggling.

 

I could have deducted 40% from that number since Bharti is the market leader with foreign promoters and other businesses. On the other hand idea shall benefit because it is getting into 3 new circles and that can ramp up growth over the next few quarters while Bharti Airtel is already is spread out..

 

 

Subscribers

Market Cap

Remarks

Bharti Airtel

19.6 million

Rs 80,000

Foreign holding  and other businesses premium is embedded.

Idea Cellular

9.0 million

Rs 22,040

On a per subscriber basis with 40% discount to Bharti’s valuation

AV Birla NUVO’s stake @ 35.74%

Rs 7,877 crores

 

Value for each of the 8.35 crore shares

Rs 943.36

 

 

 

Asset Management

n        The Domestic AUM increased to Rs 14,611 Cr from Rs 11,457 Cr in Q1 FY06

n        Share of equity is 26%

n        Offshore funds grew by 94% to Rs 1198 Cr.

n        Higher share of equity component.

n        The company also has a share in the corporate finance business.

 

Current Assets under Management

Rs 14,611 crores

Value @ 5% of AUM

Rs 876 crores

Value for each of the 8.35 crore shares

Rs 87.49

 

 

Insurance

Insurance as business model is insulated from recession and with telecom is the only sector where at company enters a new year with assured customers (the ones who are already running a policy. During the quarter the company invested Rs 30 crores as capital in its insurance JV “Birla Sun Life Insurance Company Limited”

  • The high GDP growth backed by buoyant capital markets and a favorable tax structure augur well for the life insurance industry.
  • In FY 07 Q1 the annualized premium from new business premium grew by 91%. While the number of policies issued increased to 38,000.
  • Birla Sun life has recently put through an automated underwriting system (AURA) to enhance the underwriting efficiencies.
  • Company is establishing self-service kiosks that would provide will make customers to transact more easily. .
  • The average premium per year at Rs.30,680 is one of the highest average per policy premium in the industry
  • The segment is still under losses and the company hopes to break even later in the current year.
  • A disturbing sign here was the decrease in market share to 6.2% among private insurers

 

HDFC Standard life valuations

Premium collection for 2005-06

Rs 1570 crores

Valuation assigned by prominent brokerages

Rs 5800 cores

Birla Sun life

Premium collection for 2005-06

Rs 1398.78 crores

Valuation assigned  @ 30% discount

Rs 3617 cores

Value for each of the 8.35 crore shares

Rs 433.17  per share

 

Garments

n        Fashion Brands have been registering a strong growth of 22%

n        The company is trying for a renewed thrust on exports business

n        Tied up 1.2 lac sq ft of retail space in upcoming malls

n        New large format exclusive brand outlets to be opened

n        Despite high advertisement for new collections and brand building Peter England’s expanded reach led to robust growth

 

Revenues Fy 06

Rs 620.64 crores

Value @ 1 time Market cap to sales

Rs 620crores

Value for each of the 8.35 crore shares

Rs 74.25

 

BPO & IT Services

 

Signed agreement to acquire Minacs Worldwide Inc Deal size estimated at US$ 125 million. The company is trying to increase its off shoring mix. Significant stride towards gaining strength in BPO  through increased share of high margin offshore revenues and  improved manpower utilization.

 

 

Revenues Fy 06

Rs 249.09 crores

Value @ 1 time Market cap to sales

Rs 249.09crores

Value for each of the 8.35 crore shares

Rs 29.83

  

Other businesses

 Apart from these the company is also engaged in other businesses like Rayon, Carbon black Textile, Fertilizers and  insulators.

  

Revenue from Rayon, Carbon black Textile, Fertilizers and  insulators.

In Fy 06

Rs 2095.64 crores

Valuation at Market cap to sales of 0.75

Rs 1527 crores

Value for each of the 8.35 crore shares

Rs 182.87

 

 

The Value of the three emerging businesses as computed above are:

 

Telecom

Rs    943.36

Insurance

Rs    433.17

Asset management

Rs     87.49

Garments

 

Rs     74.25

BPO & Software

Rs     29.83

Total value of these five businesses

Rs 1,568.10

Value of Other businesses in the market price

Rs    182.87

Total value for the group on per share basis

Rs 1750.97

Market price

Rs   836.00

 

 

 

Recommendation: It is a no brainier Av Birla Nuvo is a great buy. Now I was worried with the numbers that I was getting (and checked again) since it seems to be very large. I have also made a 40% provision for the telecom business and 30% for the insurance business (in valuations) when comparing it to Bharti Airtel and HDFC. The stock could double from here very easily.

On the other hand all declines are great opportunities for buying. In case the company decided to spin off these business then valuation could rise multifold in no time.



Edited by basant - 03/Oct/2007 at 5:50pm
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
PKB2000
Senior Member
Senior Member
Avatar

Joined: 11/Aug/2006
Location: India
Online Status: Offline
Posts: 1453
Quote PKB2000 Replybullet Posted: 09/Sep/2006 at 1:13am
I was a customer  of IDEA a few years ago and when I compared my present service of reliance Infocom  compared to IDEA service I think IDEA serve customers better.
Though I have shifted to reliance communication to get Mobile net connection about two years back but till I feel the differences and I appreciate the service of IDEA. I have heard IDEA can go for IPO. Is that correct?
I am always doing that which I cannot do, in order that I may learn how to do it. ~Pablo Picasso
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 09/Sep/2006 at 1:20am
Yes it would go for an IPO. Two years back Indian Rayon I guess still held some stake in IDEA and a Peter Lynch way of buy what you seewould have made you a 6 bagger in this stock!!!
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
reetesh
Senior Member
Senior Member
Avatar

Joined: 01/Sep/2006
Location: India
Online Status: Offline
Posts: 793
Quote reetesh Replybullet Posted: 09/Sep/2006 at 1:23am
But unless they dont do spin off, this value will not get materialised, look at HDFC or ICICI or for that matter Rel. Capital because the value you are talking about they never trade at par, but once they spin off then your prognosis is correct, but I dont think thats gonna happen in near future, if I am not mistaken they merged Indo Gulf and Birla global finance to Aditya Birla Nuvo and if this is correct then they have no plans for spin off in near future, but it has value there is no 2 ways about it. Correct me if I am wrong about Indo Gulf and Birla Global Finance merger..
 
Regards,
 
Reetesh.
When going gets tough, that’s when tough (people) gets going.
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 09/Sep/2006 at 1:39am
That merger did  not happen in public interest as far as I could make out of it. The ratio was favourable to Birla Global in which Kumar mangallam held a larger stake.
 
Idea is planning for an IPO very soon. The Insurance, venture has been compared to HDFC (which is still with the parent) and there too I have taken a discount of 40% and 30% respectively.
 
This stock represents real value and this val;ue will keep on increasing as the gains from the growth businesses accrue.
 
Even if the spin off does not happen It is a great play for any one who is afraid of the emerging sector and yet wants to participate. Even if the discount is constant the company shall keep growing at 30%.
 
It is something like the Morgan Stanley growth fund that we discussed earlier.


Edited by basant - 09/Sep/2006 at 1:41am
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
reetesh
Senior Member
Senior Member
Avatar

Joined: 01/Sep/2006
Location: India
Online Status: Offline
Posts: 793
Quote reetesh Replybullet Posted: 09/Sep/2006 at 1:47am
Unless name has changed of these companies Indo Gulf and Birla Global Finance, they are merged into something I myself did`nt make out I am confused but I checked when your earlier report came out about making money from spin off`s there I pointed about Aditya Birla Nuvo, I am not saying that you were not aware about it after that discussion I checked, then I read about it they were supposed to get merged but I could not make out that they are merged, then where are they? Indo Gulf & BGF.
When going gets tough, that’s when tough (people) gets going.
IP IP Logged
reetesh
Senior Member
Senior Member
Avatar

Joined: 01/Sep/2006
Location: India
Online Status: Offline
Posts: 793
Quote reetesh Replybullet Posted: 09/Sep/2006 at 1:59am
Unless name has changed of these companies Indo Gulf and Birla Global Finance, they are merged into something I myself did`nt make out I am confused but I checked when your earlier report came out about making money from spin off`s there I pointed about Aditya Birla Nuvo, I am not saying that you were not aware about it after that discussion I checked, then I read about it they were supposed to get merged but I could not make out that they are merged, then where are they? Indo Gulf & BGF.
When going gets tough, that’s when tough (people) gets going.
IP IP Logged
basant
Admin Group
Admin Group
Avatar

Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Quote basant Replybullet Posted: 09/Sep/2006 at 8:33am
They have merged all the companies now.
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
IP IP Logged
Page  of 37 Next >>
Post Reply Post New Topic
Printable version Printable version

Forum Jump
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot delete your posts in this forum
You cannot edit your posts in this forum
You cannot create polls in this forum
You cannot vote in polls in this forum



This page was generated in 0.172 seconds.
Bookmark this Page

Join Theequitydesk.com Today!

It’s easy to Join and it’s free.

Here's why members would love to be a part of theequitydesk.com

  • Equity Desk focuses on why to buy shares and invest in share rather than what to buy.
  • Live discussion forum wherein members can discuss the current Indian share Market trend, BSE Sensex or the Nifty Index.
  • Have huge cache of information on Indian and World Share Market.
  • Analysis of Indian stock market, Global events, Investing insights, portfolio management strategies and thoughts,
  • Meet investors from round the globe check their investing strategies share experiences and learn for their experiences on stocks and shares, evaluate opinions on investing in India.

Register now while it’s free!

Already a member? Close this window and log in.

Join Us           Close