CMP = Rs 1,602
Price target: Rs 2,035
Result highlights:
- The consolidated revenues of Aditya Birla Nuvo (ABN) in Q3FY2008 grew by 60% yoy to Rs 3,661.6 crore. The growth was driven by the solid performance of insurance business, which grew by whopping 185% yoy to Rs 1,485 crore contributing 41% to the overall revenues. Garments, insulators, financial services, carbon black and telecom businesses also contributed well to the overall growth.
- The share of high-growth businesses (garments, life insurance, BPO, software and telecom) to the total sales improved to 76% in Q3FY2008 as compared with 68% in the same period last year.
- However, the operating profit margin (OPM) declined by 630 basis points to 6.8% on account of margin pressure in the key business segments and increased contribution of insurance division (which is still at its nascent stage). Consequently, the operating profit declined by 17.1% to Rs248 crore.
- The segmental performance showed margin decline in all the businesses except telecom, insulators and software. Profit before interest and tax (PBIT) margin declined sharply in garments, rayon, BPO, fertilisers and life insurance businesses reducing the overall margins by 440 basis points to 3.3%.
- The net profit after minority interest declined by 46.4% yoy to Rs 30.2 crore due to higher depreciation costs and taxes as tax benefit from loss in insurance business is not fully reflected in the consolidated numbers.
- The company continued to invest the cash generated from the value businesses into the growth businesses like life insurance and telecom. The company is also planning for aggressive retail expansion and joint venture for value added fabrics. Recently, the promoters have increased their stake by issuing warrants worth over Rs 4,100 crore to themselves.
- At the current market price, the stock trades at a price/earnings ratio of 45.8x FY2009E consolidated earnings and EV/EBIDTA of 14.6x FY2009E.
- I maintain a Buy recommendation on ABN with a 12-month revised price target of Rs 2,035.
