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Aditya Birla Nuvo Equity Research

HomeCompanyAditya Birla Nuvo Equity Research

Date of Research – 12 January, 2016

Price – Rs. 2,179.95

About the Company

Founded in 1956, Aditya Birla Nuvo Limited (“Aditya Birla” or the “Company”) is an India-based diversified conglomerate. ABNL is a US$ 4.5 billion conglomerate by revenue size. It is part of Aditya Birla Group, a US$ 40 billion Indian multinational Aditya Birla operates its business across Financial Services, Telecom, Fashion & Lifestyle, IT-ITeS and Manufacturing sector. Financial Services include Life Insurance, which is engaged in life insurance services; Other Financial Services, which is engaged in asset management, non-bank financial services, private equity, equity and commodity broking, wealth management and general insurance advisory; Telecom, which is engaged in telecommunication services; Fashion & Lifestyle, which is engaged in branded apparels and accessories, and IT-ITeS, which is engaged in business process outsourcing services and software services. Manufacturing includes Agri-business, which is engaged in fertilisers, agro-chemicals and seeds; Carbon Black; Insulators; Rayon Yarn, which is engaged Viscose Filament Yarn, Caustic Soda and Allied Chemicals, and Textiles, which is engaged in Linen Yarn and Fabric, Worsted Yarn and Wool Tops.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 25,490.20 25,893.39 26,516.01 23,128.95  14,577.26 
Expenses 21,708.50 21,295.18 21,125.75 17,008.98  10,994.66  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 3,781.70 4,598.21 5,390.26 6,119.97  3,582.60  
Depreciation 1,295.49 1,608.86 1,702.75 1,726.86  203.74  
Finance Costs 1,321.16 1,561.33 1,757.57 2,316.83  2,494.00  
Other income 360.62 338.86 407.95 414.96  348.81  
Exceptional items (5.42) 13.33 (413.86)  (15.84) 
PBT 1,525.67 1,772.30 2,324.56 2,905.10  1,249.51  
Tax 341.78 550.50 833.48 872.05  297.74  
PAT (before Minority Interest and share of Associates) 1,183.89 1,221.80 1,491.08 2,033.05  946.15  
Profit/ (loss) attributable to Minority Interest 125.00 78.92 75.58 147.29  (11.47) 
Consolidated Profit / (Loss) for the year 1,058.89 1,142.88 1,415.50 1,885.76  957.62  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 14.84 17.76 20.33 26.46  24.58 
Net Profit Margin Ratio 4.64 4.72 5.62 8.79  6.49 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 114.11 120.21 130.18 130.14 130.22 
Preference shares issued by subsidiary 0.59 0.49 3.20 5.14 
Money received against warrants 223.62 – 
Reserves & Surplus 7,402.98 9,039.87 11,058.56 12,737.86 14,399.37 
Employee Stock Option Outstanding – 
Net worth (shareholders funds) 7,517.09 9,384.29 11,189.23 12,871.20 14,534.73 
Minority Interest 298.34 940.43 778.12 801.83 857.45 
Other liabilities and provisions 71.36 – 
Long term borrowings 5,283.54 16,089.63 11,895.61 15,036.59 24,044.02 
Policyholders’ Fund 19,230.28 21,366.74 22,801.68 27,184.24 27,994.83 
Current liabilities 11,916.49 9,322.14 14,515.48 17,880.94 18,700.99 
Other long term liabilities and provisions 332.48 1,283.26 1,287.72 1,661.00 
Fund for Future Appropriations 177.59 18.49 10.42 7.96 
Deferred Tax Liabilities 332.54 552.23 549.02 887.22 
Total Liabilities 45,159.71 47,781.09 63,034.10 75,621.96 88,688.20 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 9,365.02 14,988.02 17,998.98 15,837.90 21,237.89 
Noncurrent Investments 17,781.05 6,689.09 3,835.56 5,901.96 8,466.70 
Current assets 13,324.14 34,970.05 17,581.22 21,190.40 18,879.36 
Long term advances and other noncurrent assets 1,548.08 456.07 23,570.32 32,627.55 40,004.97 
Deferred Tax Assets 15.95 48.02 64.15 99.28 
Goodwill on consolidation (net) 3,125.47 – 
Total assets 45,159.71 47,781.09 63,034.10 75,621.96 88,688.20 

Efficiency Analysis

  (%)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 23.05 22.17 19.27 18.78 15.52 
ROE / RONW 11.84 11.55 10.21 11.00 13.99 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 25,490.20 25,893.39 26,516.01 23,128.95  14,577.26 
Growth (%) 16.71 % 1.58 % 2.40 % (12.77 %)  (36.97 %)
PAT (Rs. Cr.) 1,058.89 1,142.88 1,491.08 2,033.05  946.15
Growth (%) 18.96 % 7.93 % 30.47 % 36.35 %  (53.46 %) 
Earnings Per Share – Basic (Rs. ) 93.18 92.08 108.79 144.87  69.75 
Earning Per Share – Diluted (Rs. ) 91.50 91.12 108.62 144.72  69.66
Price to Earnings 10.70 13.64 16.96 5.70   

Dividend History

The Company has maintained an average dividend yield of 0.56 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. ABNL’s average current ratio over the last 5 financial years has been 1.08 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

ABNL’s average long term debt to equity ratio over the last 5 financial years has been 0.90 which indicate that the Company is operating with a significant level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

ABNL’s average interest coverage ratio over the last 5 financial years has been 5.14 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Aditya Birla reported a promoter holding of 62.76 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 26.58 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

One Response to “Aditya Birla Nuvo Equity Research”

By D S N MURTY - 2 September 2016

Really good inforamition

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