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Showing posts with label ADITYA BIRLA NUVO LTD. Show all posts
Showing posts with label ADITYA BIRLA NUVO LTD. Show all posts

Friday, January 13, 2017

ADITYA BIRLA FASHION AND RETAIL LTD: RETAILING WAY !!!

Scrip Code: 535755 ABFRL
CMP:  Rs. 139.70; Market Cap: Rs. 10,744.23 Cr; 52 Week High/Low: Rs. 246.90 / Rs. 122.90
Total Shares: 76,90,93,684 shares; Promoters : 45,71,64,117 shares – 59.44 %; Total Public holding :  31,19,29,567 shares – 40.56 %; Book Value: Rs. 12.22; Face Value: Rs. 10.00; EPS: Rs. -0.76; Dividend: 00.00 %; P/E: --- times; Ind. P/E: 88.25; EV/EBITDA: 28.19x
Total Debt: Rs. 1,849.31; Enterprise Value: Rs. 12,573.21 Cr.

ADITYA BIRLA FASHION AND RETAIL LIMITED: The Company was incorporated in April 19,2007, as Peter England Fashion and Retail Ltd and changed its name to Pantaloons Fashion & Retail Limited on April 23, 2013. Then it changed its name to Aditya Birla Fashion and Retail Limited. ABFRL is a fashion and lifestyle company. The Company is engaged in providing branded fashion apparels and accessories, and the retail sale of clothing, footwear and leather articles in stores. It operates through two segments: Madura Fashion & Lifestyle, and Pantaloons. Its Madura Fashion & Lifestyle segment is engaged in manufacturing and distribution of branded fashion apparel and accessories, and comprises over 1,800 exclusive brand outlets (EBOs) and approximately 150 value stores. Its Pantaloons segment is engaged in retailing of apparel and accessories, and comprises over 160 stores, including one Pantaloons Kids store and approximately 30 Factory Outlets. The Pantaloons segment has a diversified customer base with men, women, kids and non-apparels. The Company's brands include Louis Philippe, Van Heusen, Allen Solly and Peter England. ABFRL is locally compared with Brandhouse Retail Ltd, Trent Ltd, V-Mart Retail Ltd, Thomas Scott India Ltd, Bombay Swadeshi Stores Ltd, Future Enterprise, V2Retail Ltd, Himatsingka Seide Ltd, and globally compared with Christian Dior of France, Nike of USA, Inditex (ZARA) of Spain, Cheil Industries of Korea, TJX Cos of USA, H&M Sweden, Kering (GUCCI) of France, Adidas of USA, VF (VANS) of USA, L Brands (Victoria secrets) of USA, Ross Stores of USA, Fast Retailing Japan, GAP of USA, Hermes International of France, Nordstrom of USA, PVH (Tommy Hilfiger) of USA, Burberry Group of UK.         

Investment Rationale:
Aditya Birla Fashion and Retail Limited (ABFRL) have evolved from the amalgamation of the branded apparel and retail business of the Aditya Birla Group namely Madura Fashion (Madura) division (from Aditya Birla Nuvo, ABNL) and Pantaloons Fashion and Retail (PFRL). The consolidated entity is the largest pure fashion player in India with leading menswear brands (from Madura) and one of India’s largest big-box fashion retailers in the form of Pantaloons. In 1999 Aditya Birla group took over Madura Garments, in 2004 it translated itself from wholesale to retail, in 2006 it expanded its retail network for the brands, in 2007 it launched The Collective and People brand, in 2013 it acquired Pantaloons in 2015 it consolidated its apparel business. Madura is the owner and perpetual licensee of prominent brands such as Van Heusen, Louis Philippe, Allen Solly and Peter England with over 2000 retail stores and over 7000 points of sale, encompassing a retail footprint of 2.6 mn sq ft. ABFRL also houses The Collective, a super-premium retail concept offering high end brands such as Armani Jeans, Versace Collection, Hugo Boss, McQ Alexander McQueen etc. Pantaloon’s focuses on value fashion and is now a leading player in women’s wear with 163 stores covering 2.9 mn sq ft over 78 cities across the country. The merger of Pantaloons with Madura was completed in an all-stock transaction on Jan 9, 2016, with an effective date of 1st April 2015. The merger transaction was structured through the following route: Mirror demerger of Madura Fashion division into Pantaloons, Mirror demerger of Madura Lifestyle division (100 % subsidiary of ABNL) into Pantaloons The subsequent swap ratios were: 26 equity shares of Pantaloons for every 5 equity shares of ABNL, 7 equity shares of Pantaloons for every 500 equity shares of Madura Lifestyle, 1 equity share of Pantaloons for all outstanding preference shares of Madura Lifestyle Post the merger, Pantaloons was re-named ABFRL and the holding of ABNL in ABFRL declined from 72.6 %. However, the holding company Aditya Birla Group (ABG) which holds 57.2 % in ABNL retained majority ownership in ABFRL with a 51.1 % stake in the company. The total size of the Indian retail market is estimated to be USD 600 billion and has been growing at a CAGR of 7 % over FY10-15. Apparel retail market constitutes 8 % of India’s retail market and is pegged at USD 45 billion, of which, only 19 % is organised apparel retail. As per industry estimates, the entire retail sector is slated to grow at a CAGR of 11 % to USD 1 trillion by 2020, with modern retail outpacing the sector growing at 26 % CAGR to USD 150 billion. Organised apparel market is slated to grow at 15 % over the next five years. The key growth drivers for modern retail include favourable demographics, rising brand awareness leading to a shift to organised, improved infrastructure, increased penetration of e-commerce. India’s strong demographic profile is one of the key drivers to accelerated growth in organised formats. Factors like rising disposable income, increasing urbanisation, changing lifestyle with greater exposure to global fashion/trends and rise in discretionary spends are essential for a sustained growth of the organised sector. The urban population, which accounted for 30 % of the total population in 2010, is expected to increase to 40 % by 2030. Industry estimates expect higher per capita spend a + 25 % to 50 % with over 20 Cr nuclear family households. With growing urban population and increase in number of dual income nuclear families are expected to result in average annual household income tripling from US$ 6,393 in 2010 to US$ 18,448 in 2020. The penetration of modern retail via exclusive brand outlets, multi-brand outlets, departmental stores and cash & carry formats have exposed Indian consumers to the latest fashion trends and helped in building brand awareness. It is estimated that organised retail would contribute 40 % to total apparel retail market by 2020. The rise of e-commerce has been a boon to retailers allowing them to sell across the country without incurring the cost of setting up stores. The size of online retail is pegged at US$ 3.5 billion, with fashion contributing 35 % to the sales volume mix. By 2020, Indian online retail is expected to grow 13 times to US$ 45 billion, with proportion of online shoppers amongst internet users doubling to 40 %. The menswear segment contributes 42 % to the Indian apparel market and is expected to grow at a CAGR of 9 % to US$ 40 billion by 2023. While it is currently dominated by categories such as shirts and trousers, western wear, especially denim market is expected to grow at an astounding 14 % CAGR fuelling growth in the segment. By comparison, womens wear is relatively smaller in size contributing 38 %, but is expected to grow at a faster pace of 10 % CAGR to US$ 39 billion by 2023. The growth in this segment is expected to be driven by a shift to branded apparel and an increased share of western wear. The kids wear segment is the fastest growing category, estimated to grow at 11 % CAGR to US$ 22 billion by 2023, driven largely by the luxury and premium categories. ABFRL has strengthened its portfolio with acquisition of Pantaloons diversifying from men to women’s and kids wear. It has wide range of merchandise across all price segments, thereby expanding customer base and affordability in branded apparel segment. The Company has expanded to boost portfolio through organic and in-organic route into super premium segments like Simon Carter and Forever 21. ABFRL has established a global supply chain for raw materials, strong in-house design and product development capabilities to cater to the changing perception and taste of the consumers. It has an extensive reach through multi-channel distribution network of 2,100 retail stores and >7,000 additional points of sale operating in more than 375 cities/towns and own e-commerce venture to cater for online sales. ABFRL has presence in 375 cities with over 7000 points of sale and more than 2000 Exclusive Brand Outlets (EBOs) and Value Stores, with an overall retail footprint of 5.6 mn sq. ft. The company is the owner/perpetual brand licensor of leading brands such as Louis Philippe, Van Heusen, Allen Solly and Peter England. Pantaloons has a strong portfolio of exclusive brands, contributing to 60 % of total revenues and is one of the largest value fashion retailers in the country. The consolidation of these two entities has created a formidable player in the brand and fashion retail space, encompassing offerings across the value chain with an unparalleled network. Madura is expected to benefit from the stable cash flow generation of its mature brands and grow through new brand acquisition and increased penetration. Pantaloons is currently in the final phase of restructuring and stands to gain from profitable store expansion and uptick in urban demand. Madura, the brand business of ABFRL traces its origins from Madura Coats Limited, a readymade garments division of Coats Viyella PLC, UK. Madura Coats was acquired by the Aditya Birla Group (Indian Rayon Industries) in the year 2000. ABG also acquired the exclusive brand right/ownership of premium brands such as Louis Philippe, Van Heusen, Allen Solly, and Peter England. Since the acquisition of Madura Coats and the ownership/licensee of the brands, the company has grown the premium brands namely Van Heusen, Allen Solly, Louis Philippe and Peter England to an enviable position. Currently, the four brands report revenues in excess of Rs 10bn (at MRP) each, far ahead of its competitors in the brand space. Over the years, the company has acquired brands across the value chain to provide a diverse offering to its customers. The Collective is super-premium apparel and accessories retail outfit housing brands such as Armani Jeans, Versace Collection, Hugo Boss, Vivienne Westwood, McQ Alexander McQueen, etc. Louis Philippe is a premium menswear brand that specialises in formals, semi-formals, custom made clothing and accessories, while Van Heusen offers formal wear, party wear and casual wear ranges for both men and women. Allen Solly has created a niche for itself by introducing the concept of “Friday Dressing” to menswear in India and Peter England remains the largest mid-segment menswear brand in the country. PEOPLE is a fast fashion brand focusing on international and fusion styles with presence in menswear, womenswear and kidswear. ABFRL has recently acquired Forever21’s franchise from DLF brands for a consideration of Rs 1.75bn. This acquisition will help the company to take advantage of the fast growing women’s apparel segment. Madura’s menswear brands encompass the “premium” and “bridge to- luxury” categories in both - formal and casual clothing. Pantaloons has successfully captured the fast growing value and fast fashion segment providing ABFRL a portfolio of brands across the entire fashion pyramid. While Madura has a superior store network with over 1800 EBOs and 150 value stores covering over 2.8mn sq ft, the merger with Pantaloons gives it access to a further 146 big box retail stores and 22 factory outlets. The combined entity has a retail footprint of 5.6 mn sq ft, with presence in big box format, EBOs and MBOs. With its origins in Kolkata, Pantaloons has remained strong in the east region of the country, and the contribution from North and East was 56 % as of Q1FY17. Madura, on the other hand, has over 58 % of its stores located in the South, Central and Western regions of the country, giving ABFRL a strong pan-India presence. Pantaloons has over 5.5 mn members in their loyalty programme contributing to 75 % of sales while Madura runs various loyalty programmes for their brands and has a base of 8.6 mn members contributing to 55 % of sales. The combination of the loyalty programmes will enhance the user base and can be used by the company to provide a better service to its customers using big data analytics etc. In a bid to improve the diversity of offerings from a predominantly menswear brand portfolio, the company has launched new categories such as kids wear, women’s western wear, party-wear and accessories. This category extension not only helps de-risk the brand portfolio, repositioning the division from menswear to a family outlet, but also provides access to high growth categories such as womens wear and kids wear. In-line with their category expansion strategy, the company recently launched innerwear and athleisure wear (clothing designed for workouts and other athletic activities) in Bangalore, Chennai and Hyderabad markets, entering the Rs 710 bn innerwear market under their brand Van Heusen. While mainline brands have grown at a steady 17 %+ CAGR over the past 5 years, the category has seen some challenges over the past 12 months. Overall growth has been boosted by associated categories, which have reported a stronger growth at 37 % CAGR over the past 5 years. Increasing per capita income, and increasing discretionary spending, and a portfolio of brands across the entire fashion pyramid makes ABFRL the best in the retail sector also with its complemented presence across the traditional and new distribution platforms will have huge revenue positive. During the past several years, the company has invested heavily to further enrich its brands. With a strong foothold in Indian retail space, possession of some of the well-known brands, ABFRL is an eminent in Indian Retail sector.  

Outlook and Valuation:

Aditya Birla Fashion & Retail has extensive reach with a footprint of 5.5 mn square feet in India and is considered to be India’s No.1 pure fashion Lifestyle Company having five largest and most admired brands i.e. Louis Philippe, Van Heusen, Allen Solly, and Peter England & Pantaloons. ABFRL is building an agile design & supply chain by shifting from 2 seasons to 4 seasons and the company has worked with internal and external consultants for this transition. The main aim of this strategy is to stay ahead of the peers in introducing the latest trends in the market and to aid correction in the inventory levels. With expectations of a stable macro-economic environment over the next 6-9 months, FY2018 is expected to be better for the branded apparel players. With a strong presence in the Men’s and Women’s apparel space, ABFRL to be one of the key beneficiaries of improving discretionary consumption trend. ABFRL has acquired brand ‘Forever 21’during July 2016, and also acquired the online and offline rights of this contemporary women’s fast fashion brand. With ‘Forever 21’ acquisition, ABFRL has created a strong play in one of the fastest growing segments in the Indian Branded Apparel market. Also, in early September 2016, ABFRL entered into the men’s innerwear and athleisure market under the Van Heusen brand in Chennai, Hyderabad and Bengaluru. The Van Heusen branded men’s innerwear and athleisure products are available across 400 Multi Brand Outlets (MBO) and ABFRL plans to launch it pan-India next year. H1FY2017 results include the financials of ‘Forever 21’ which was acquired in Q2FY2017 and also the newly launched Van Heusen innerwear business. During November 2016, ABFRL signed an exclusive deal with the UK’s most successful fashion brand, Ted Baker to offer men’s wear, women’s wear and accessories in India. Ted Baker has more than 500 stores across Europe, the US, Canada, Australia, China, South Africa and the Middle-East. ABFRL’s portfolio of brands spans luxury, premium, sub-premium and fast fashion segments. The addition of Ted Baker will further augment ABRFL’s position in the affordable luxury space. The company is planning its first Ted Baker store by the end of FY2017. ABFRL runs three separate models for their Exclusive Brand Outlet’s, namely, Company-Owned-Company-Operated (COCO), Company-Owned-Franchise-Operated (COFO) and Franchise-Owned-Franchise- Operated (FOFO). The COCO model forms 30 % of EBOs, in here the company owns the inventory and also invests in rent and other capital expenditure to set up the store. Madura prefers using the COFO model which is 30 % of EBOs, where inventory is owned by the company but the franchise invests in store fittings, rent and operations. This is a preferred model, since the company is able to manage inventory at an aggregate level with better IT system with minimal capital investment in the store. In smaller markets, where the company feels that it lacks the experience and expertise to understand local trends, they prefer a FOFO model which constitutes 40 % of EBOs. In this model, the inventory is sold outright and is owned by the franchise. All sales made to MBOs are on an outright sale basis. Madura uses distribution agents, who are mapped to MBOs depending on the locality they service. The company has its average store size is of 1500 to 2000 sq. ft., and capex required is Rs. 3,000 per sq. ft., and has inventory of Rs. 20 lakhs which attains break even in 12-15 months with payback period in 48 – 50 months. The company has rationalized its store network over the past few quarters by closing down unprofitable stores to improve overall network health. Madura reported capital employed turn and ROCE of 7.7 x and 55 % respectively after adjusting goodwill. Since the acquisition of Pantaloons by ABG, the retailer is undergoing a massive restructuring programme in phase manner. In the first phase, the company managed the transition, whereby 22 stores were renovated and 14 new stores added. Additionally, to boost their private labels Pantaloons set up an in-house design studio to design their merchandise and also created a new vendor network. In second phase, gaps in the portfolio were filled with new brands. Pantaloons launched six new brands and also rolled out a new SAP system. Cost efficiencies, price improvement and optimising product mix led to 3.00 % improvement in gross margin. In the third phase which is in FY16, Pantaloons reported a revenue growth of 17 %, and an SSG of 5.9 % embarking on its growth journey. Pantaloons reported an EBIT loss of Rs 1.6 billion with EBIT loss of Rs 1.1 billion excluding one-offs of Rs 48.5 Cr, and is well on its way to achieve its profitability target in the near term. In its fourth phase company intends to build scale via store and brand expansion, currently, Pantaloons is in the process of adding 40 to 50 stores a year and adding new brands/categories wherever they find white spaces in their overall portfolio. This will help sustain the growth trajectory the company embarked upon. The company has now entered the final phase of restructuring of Pantaloons, where the focus would remain on driving profitable growth with a focus on private labels, new brand additions especially in the fast fashion space and category expansion in kidswear. Pantaloons has also been spearheading the shift to a 4 season model (versus a 2 season model that currently exists) to ensure freshness in stock and improve overall turns. Additionally, the company has managed to reduce their price points in Pantaloons by 7 % to 8 %, while improving their gross margins by increasing the contribution from more profitable private labels and by controlling the markdowns. On financial side in Q2FY2017, Aditya Birla Fashion & Retail’s (ABFRL) overall revenue grew by 13 % YoY, mainly led by a 22 % YoY growth in Pantaloons and 5 % YoY growth in Madura Fashion & Lifestyle (MFL). But, MFL witnessed a 10 % YoY decline in revenue on a like-to-like basis due to inventory correction. The branded readymade garments & fashion industry witnessed a prolonged End of Season Sale (EOSS) with deep discounting across segments. However, the Operating Profit Margin (OPM) of 8.8 % was down by only 0.70 %, led by lower discounting in the Madura business and reduced operating leverage in the Pantaloons business. Profit after Tax (PAT) stood at Rs. 64.9 crore, which was up by 7 % YoY. The demonetisation has had an adverse effect on ABFRL’s operations, particularly the wholesale business of Madura. The wholesale channel, as in most distribution businesses, has significant dealings in cash, which will impede the company’s ability to absorb incremental inventory. Also, footfalls in the Pantaloons business would be affected in Q3FY2017 and early part of Q4FY2017 due to a slowdown in overall discretionary consumption. Since 45 % of the company’s business happens in cash, H2FY2017 performance is expected to be much lower in comparison to H1FY2017. It is expected that ABFRL’s EBITDA margins to improve by 1.40 % over FY16-19E to 7.9 % on the back of completion of restructuring process in Pantaloons, improved consumer demand driving SSG and operating leverage in both Madura and Pantaloons, and improving mix in favour of private labels in the retail business. ABFRL can have EBITDA growth of 23.6 % CAGR over FY16-19E to Rs 7.5 billion. Decreasing interest burden coupled with strong operating level profitability is expected to drive PAT to Rs 2.4 billion in FY19E against a loss of Rs 1 billion in FY16. Operating leverage and mix improvement should drive margin profile. In addition, lower interest outgo will further aid profit growth. Improved profitability and controlled working capital to drive return ratios and free cash flow. The ROCE is expected to expand from 12.45 % to 15 % in FY19E.  ABFRL can report positive free cash flow from FY18E. Given the varied margin and growth profiles of both the divisions, Madura & Pantaloons are valued separately. Madura on an EV/EBITDA valuation methodology assigning a 10 % discount to Page Industries (Page has a superior return ratio profile). Pantaloons will turn profitable in the near term with robust EBITDA growth. Pantaloons on an EV/EBITDA valuation methodology given 20 % premium to SOTP Value in multiple of Shoppers Stop (SHOP) due to higher private label mix. Based on our SoTP valuation, ABFRL comes around Rs. 200 per share. ABFRL is expected to have better financial performance in FY2018 and FY2019. Expected recovery in the macro-economic environment, better Pantaloons performance and an improved performance by some of recent acquisitions would be the key triggers for ABFRL in the near term. The stock has already corrected by 15 % in the last six weeks and could be seen as a good entry point in view of its long-term growth prospects. Maintaining a Positive view on ABFRL a upside of 15-20 % from the current level is expected. The current market price of stock is Rs. 139.70, can post Earnings per share (EPS) of Rs. (0.10) in FY17E and Rs. 1.80 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. ABFRL is the best amongst the retail sector stocks.

SOTP VALUATIONS :
Business Subsidiary 
Value Per Share ()
Madura
179.47
Pantaloons
46.04
Enterprise Value (Rs.)
255.51
less Net Debt (Rs.)
24.66
Market Capital (Rs.)
200.85
Shares Outstanding (cr)
76.90
Value Per Share
200.85

KEY FINANCIALSFY16FY17EFY18EFY19E
SALES ( Crs) 6,060.005,994.007,119.008,683.00
NET PROFIT (₹ Cr)(104.10)(5.40)75.90137.50
EPS () (1.40)(0.1)1.001.80
PE (x)(102.60)(786.0)147.7048.90
P/BV (x)11.3011.5010.708.80
EV/EBITDA (x)30.8030.1021.5017.60
ROE (%) (16.20) (0.6)7.8012.70
ROCE (%)3.507.6010.6012.30

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Tuesday, March 3, 2015

ADITYA BIRLA NUVO LTD : HUGE VALUE UNLOCKING OPPOURTUNITY !!!

Scrip Code: 500303 ABIRLANUVO
CMP:  Rs. 1,735.70; Market Cap: Rs. 22,587.33 Cr; 52 Week High/Low: Rs. 1916.15 / Rs. 1032.25 ; Total Shares: 13,01,33,885 shares; Promoters : 7,44,44,697 shares – 57.21 %; Total Public holding : 5,56,89,188 shares – 42.79 %; Book Value: Rs. 859.77; Face Value: Rs. 10.00; EPS: Rs. 96.82; Dividend: 70.00 % ; P/E: 17.92 times; Ind. P/E: 31.69; EV/EBITDA: 7.28.
Total Debt: 18,429.86 Cr; Enterprise Value: Rs. 40,350.65 Cr.


ADITYA BIRLA NUVO LIMITED: The Company was incorporated in 1956 and was earlier known as Indian Rayon Corporation Limited and changed its name to Indian Rayon and Industries Ltd in 1987. The company in the year 2005 again changed its name to Aditya Birla Nuvo Ltd. Aditya Birla Nuvo Limited is a large diversified conglomerate, which engages into apparel, viscose filament yarn, carbon black, branded garments, textiles, agri business activities, life insurance business, IT solutions & telecom business. Its Apparel business consists of Madura Fashion & Lifestyle Brands Division; its brands are Louis Philippe, Van Heusen, Allen Solly, Peter England, Espirit, People, The Collective- A international retailing brand, Peter England Menswear Brands Division, Peter England Fashions & Retail, Madura Garments Lifestyle Retail Co. Ltd., and Madura Garments Exports Ltd. Its Textiles business consists of Jaya Shree Textiles. Its Agri Business manufactures and markets urea, agricultural seeds and agrochemicals under the brand name of Indo Gulf Fertilisers, Birla Shaktiman Urea Gold, Birla Shaktiman Urea KrishiDev neem coated, traded fertilizers, Birla Shaktiman seeds - mainly paddy and wheat, and Birla Shaktiman pesticides. Its Insulators business consists of Aditya Birla Insulators. Its Viscose Filament Yarn (VFY) unit, consist of Indian Rayon and Ray One, producer of viscose filament yarn in India. Company’s Carbon Black business consists of Hi-Tech Carbon. Company’s IT services business consists of Aditya Birla Minacs IT Services Ltd., which offers clients domain-centred solutions for the financial supply chain, enterprise solutions and business assurance. Its Life Insurance business consists of Birla Sun Life Insurance Company Limited (BSLI), which offers insurance-related wealth accumulation products and services for individuals, groups and NRIs and is a 74:26 joint venture between ABNUVO & Sun Life Financial, Canada. ABNUVO’s Asset Management consists of Birla Sun Life Asset Management Company Limited (BSLAMC), and is a 50:50 joint venture between the ABNUVO and Sun Life Financial Services of Canada, which provides ethical, innovative, research and analysis based investments and wealth management services. & also operates as the investment manager of Birla Sun Life Mutual Fund. ABNUVO also has NBFC named Aditya Birla Finance Ltd- a 100% subsidiary of ABNUVO. Company also includes Other Financial Services namely ADITYA BIRLA MONEY which provides money management & brokerage services to domestic & international clients, Aditya Birla Capital Advisory Private Ltd which is into Private Equity, Aditya Birla Money Mart Limited which is into Wealth Management, Aditya  Birla Insurance Brokers Limited which is into General Insurance Advisory. ABNUVO is the major shareholder with 23.29 % in Telecom company - Idea Cellular Limited (IDEA), which is a major GSM mobile service operator in India. ADITYA BIRLA NUVO is locally compared with Bajaj Finserv Ltd, Piramal Enterprises and Globally compared with Berkshire Hathaway of USA, Agricultural Bank of China of China, Royal Dutch Shell of USA, HSBC Holdings of Hong Kong, Exxon Mobile Corporation of USA, General Electric Company of USA, JPMorgan Chase & Co of USA, China Construction Bank of China, Industrial & Commercial Bank of China of China, MNRB Holdings Berhad of Malaysia, Great Eastern Holdings Ltd of Singapore, Lifenet Insurance Company of Japan, PetroChina Company Ltd of China.

Investment Rationale:
Aditya Birla Nuvo is a US$4 billion conglomerate operating in the services and manufacturing sectors, where it commands a leadership position. Its service sector businesses include Financial Services - Life Insurance, Asset Management, NBFC, Private Equity, Broking, Wealth Management and general insurance advisory, Fashion & Lifestyle - Branded apparels & Textiles and Telecom. Its manufacturing businesses comprise the Agri, Rayon and Insulators Businesses. Aditya Birla Nuvo is part of the Aditya Birla Group, a US$40 billion Indian multinational. The Group operates in 36 countries across the globe and is anchored by an extraordinary force of about 120,000 employees belonging to 42 nationalities and derives more than 50 per cent of its revenue from its overseas operations. The company sells two branded apparels every second from its Fashion & Lifestyle Business & is one of the largest branded apparel players in India. Louis Philippe, Allen Solly and Van Heusen are the prime and amongst famous brands & continue to be the best selling brands in India. It opened one store per day & now had expanded its retail presence to 1,750 exclusive brand outlets-stores, spanning nationwide across 4.3 million square feet. Companies has its insurance business and the Indian Life insurance industry currently comprises 23 life insurers and one public sector life insurer – LIC. The top 7 out of 23 private players contributed to 74 % of the private sector’s total new business premium in 2013-14. In 2013-14, the industry’s new business premium was up by 3 % to Rs. 59,041 Crore. LIC grew by 8 % while private players de-grew by 5 %. Consequently, the share of private players in the total pie declined from 40 % to 37 %. In terms of Individual Life new business, private life insurers as well as LIC de-grew by 3 % (Source: IRDA). Given the macro-economic environment and product transition to meet regulatory guidelines, sales growth across the industry was impacted. Following major regulatory changes in 2009, there has been a perceptible slowdown in the industry. However, this has given an opportunity to existing insurance players to review their operating models to drive towards higher efficiencies and focus on more balanced growth objectives. ABNUVO has its Retail Segment, and operates in the organised retailing market; clothing and fashion retailing. These are the largest and the most penetrated segment. The organised apparel market is growing at a faster pace than the overall apparel retail market driven by multiple factors including significant growth in discretionary income and changing lifestyles. Easy availability of credit and use of ‘Plastic Money’ have contributed to a strong and growing consumer culture in India. Expansion in the size of the upper middle class and higher advertisement outlays have led to high brand consciousness- awareness and encouraged more spending on luxury products. Within the organized apparel market, men’s category is the largest segment with more than 50 % share. Menswear will continue to dominate the market in the years to come, however, the women’s wear and kids wear are expected to grow faster and enhance their share in the overall expanding pie. In fiscal 2013-14, persistently high inflation coupled with a slowdown in the economy had a bearing on the clothing and fashion retailing segment too due to subdued consumer discretionary spending, which is now changing into positive and will be good for retail arm of ABNUVO. The Company has its Telecom business and the mobile telecommunications industry in India is divided into 22 Service Areas – 3 metro Service Areas, and 19 other Service Areas. As of March 31, 2014, India had a total reported subscriber base of 904.5 million and a VLR (active) subscriber base of 790.9 million. As of March 31, 2014, mobile Tele-density was at 72.9 % based on reported subscriber and 63.8 % based on VLR subscribers. Indian Mobile Subscriber stats as on December 2014 were 94.4 Cr Total with 83.3 Cr Active subscribers, 14.3 Cr MNP Request and Broadband subscribers of 8.57 Cr. In fiscal 2013-14, the gross revenue of the Indian wireless sector grew year-on-year by 10% to Rs. 1,65,100 Cr (US$ 28 billion). The top three cellular operators in India - Bharti Airtel, Vodafone and Idea Cellular, garnered 70 % revenue market share up from 68 % a year ago. The competitive intensity in the Telecomm industry has decreased since the quashing of the licenses and the associated spectrum by the Supreme Court of India in February 2012. The Small operators are forced to exit or reduce their presence in India. The number of licensees has therefore decreased to 6-10 mobile operators per Service Area. In addition, increasing losses have forced operators to start rationalizing tariffs to protect their investments. As a result, realizations have started to improve. And Idea the Telecom arm of ABNUVO has good footing in this sector with good sales promotion and better tariff to offer. This is surely a plus point for ABNUVO. The company’s Financial Services is Gaining its market share in the Life Insurance business through good quality sales, driven by an efficient distribution network with acceptable expense levels, and with Growing profitable assets while maintaining fund performance in the Asset Management business. The company is expanding its book size in the NBFC business, while keeping risk under control. Company has managed to capture the growing Housing Finance business and has also forayed into the Health Insurance business; this will drive the profitable growth in other businesses. The Company has been successful in Capitalising on Brand !DEA, which has strong cash flows and expanding spectrum profile & infrastructure in the Telecom business will help further to capture opportunities in the voice & the emerging wireless broadband business segments. Leveraging brand leadership of Company’s Fashion & Lifestyle by scaling up retail space & enriching product portfolio in Branded Apparels business will be added advantage, It has Expanded its linen yarn capacity to tap sector growth & is now focusing on high margin linen fabric retail in Textiles. Capturing such growth sectors gives immense opportunities and will improve margins in the Manufacturing businesses.

Outlook and Valuation:
Aditya Birla Nuvo Ltd (ABNL), a US$ 4 billion diversified conglomerate by revenue size and is a part of Aditya Birla Group, a US$ 40 billion Indian business house. Aditya Birla Nuvo Limited has an interesting mix of value-creating businesses that represent domestic consumption sector like telecom, fashion and garments, import substitution like fertiliser, viscose fibre yarn and financial services like insurance, NBFC lending, asset management among several others. These business lines give ABNUVO a unique competitive advantage in allocating funds across varied businesses and lower cost of capital. It can finance longer gestation businesses and withstand short-term earnings volatility while keeping in sight long-term goals and value creation. ABNUVO was predominantly a manufacturing house till a few years ago but now it’s a huge diversified conglomerate. It has embarked on a programme to build a new economy services sector business backed by cash flows from the manufacturing business and captured that transition successfully. During FY05-13, the share of manufacturing in revenue dropped from 67 % to 28 %. Services and consumption revenues now constitute the bigger part and reflect future opportunities. The company has painstakingly gained leadership position across business lines and has widened the moat on the back of disciplined execution. These key milestones achieved by the company have defined the entrepreneurial spirit of the company and laid the foundation for robust growth in future. ABNUVO has successfully built a pan-India telecommunications powerhouse, “Idea Cellular” and this telecom business has crossed the regulatory minefield and increased its market share to the current 16 % and is considered amongst top 3 in India, while competition intensity has reduced considerably. The company is the sole investment vehicle of the Aditya Birla group in telecom sector and has 23.30 % investment in Idea Cellular. The sector was marked with high capital investments of around Rs. 9,000 crore by ABNUVO and it gave poor returns. However, with the reduction in competitive intensity the return on capital employed (RoCE) has improved for the company and it’s now one of the successful feathers in the wings of the company. The ABNUVO has built a high-growth fashion and branded garment business, Madura Lifestyle that generates RoCE in excess of 20 % a year and is leader in its sector. This business was a loss-making acquisition for a long time, but with its unique operating structure and stable earnings of the group has led to business creation over the last eight years, while most competitors have floundered in the downturn. Recently, Allen Solly, the premium Readymade brand from Madura Garments citied to set a target of a turnover of Rs. 1,000 Cr in FY16 and expects to touch Rs. 800 Cr in sales this fiscal and Rs. 1000 Cr in the next. The Allen Solly brand has been growing at 34 % CAGR for the last three years and expects to maintain that. Last fiscal its revenue stood at Rs. 600 Cr. Mens wear enjoys a lion's share of the Allen Solly revenue with womens apparel constitutiong only 18 % & childrens wear 7 % & exports around 5 % mainly to SAARC countries & West Asia. Allen Solly brand also has footwear, handbags and accessories which contributes around 5 % of the sales. Allen Solly has a 10 year licencing agreement for Wimbledon merchandise through Solly to sell mens wear. Also, ABNUVO has built insurance business with 8 % of market share and in asset management, it has 9.4 % market share, this business is a JV and is among the top 5 players in terms of market share and profitability. It is also one of the prime candidates among 26 applicants for new banking licences to be issued by the Reserve Bank. ABNUVO also has presence in retail broking, wealth management, distribution of financial products and general insurance advisory and has forayed into private equity as well. While ABNUVO transformed its portfolio and grew new businesses, its market cap has grown only marginally. Shareholders have for long complained about lack of focus, low RoE-RoCE generated by the operating businesses and investment structures with long payoffs. But these all is changing & Companies efforts are being paid off. During 2007-2013, ABNUVO seeded new businesses. Its key businesses are now attaining critical mass within their industry segments. Now it is positioned to deploy sizeable capital and realise attractive returns. The company has switched from investment mode to harvest mode now, and has a three-pronged strategy to achieve this. The first part is to consolidate segment leadership with bolt-on acquisitions. In 2012, ABNUVO acquired the retail format business of Pantaloon for Rs 1,200 crore, employing its management bandwidth to harness synergy and turn around this business. This creates a combined fashion enterprise of about Rs 4,000 crore (sales) with revenue growing in excess of 15 % a year, synergies of scale and a tight control over working capital. Given that most competitors operate in niches or lack the financial capability to drive consolidation in the industry, the company is well placed to lead the rapid transition from unorganised to organised markets. It is also eagerly waiting for policy guidelines for the fertiliser business and is geared up to make significant investments in this business, which has a good RoCE. Second, ABNUVO is realigning its business portfolio. It has divested the low-margin carbon black business and redeployed capital in the NBFC lending business, which is generating higher RoCE over an economic cycle. It has also marked out the Rs. 2,400-crore IT-ITES business, which generates a RoCE of less than 9 %, for divestment. This will release capital of Rs. 2,000 crore that can be deployed in other businesses. The third part of the strategy relates to “Value Unlocking”. ABNUVO has considerable experience in financial services through its activities in NBFC lending, life insurance and asset management. With its impeccable track record, the group was always a strong contender for a banking licence. If that happens, the financial services businesses will be spun off into a separate structure, thereby unlocking the value of the investments and reducing the holding company discount attributed to the listed company. ABNUVO’s Sales, profit after tax and book value have grown at a CAGR 30 % over the past eight years. The company has achieved this with minimal dilution of equity. It generated cumulative operating cash flow of over Rs. 15,000 crore, which has been deployed in various growth businesses as well as to reduce debt. Overall, the total debt level is close to 1.65X, much less if we remove the leverage by NBFC. Most of the new businesses have attained a reasonable size and market leadership in their respective industry. There could be a significant improvement in consolidated RoCE from the current 11 % for the next three years. With Superior RoCE in various businesses will benefit the company and could trigger re-rating for the company. At the current market price of Rs. 1735.70, the stock is trading at a PE of 18.37 x FY15E and 16.83 x FY15E respectively. It can post EPS of Rs. 94.46 for FY15E & of Rs. 103.08 for FY16E. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALSFY13AFY14AFY15EFY16E
SALES ( Crs)25,490.2025,893.3927,964.8629,922.40
NET PROFIT (₹ Cr)1,058.891,142.881,228.791,340.90
EPS ()88.0987.8694.46103.08
PE (x)17.7317.7816.5415.15
P/BV (x)2.051.821.631.46
EV/EBITDA (x)11.0510.8410.319.87
ROE (%)12.9210.9210.3910.10
ROCE (%)21.5422.1022.1422.12

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