| Summary of Contents STOCK UPDATE Aditya Birla Nuvo
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,030
Current market price: Rs809
Life insurance and AUM businesses outperform Key points -
Aditya Birla Nuvo (ABN) is well positioned in its life insurance and asset management business segments versus its competitors. The company?s subsidiary, Birla Sun Life Insurance (BSLI), and joint venture, Birla Sun Life Asset Management (BSLAM), have seen improvement in their market share and outperformed the industry. -
On a year-to-date (YTD) basis, BSLI reported a 10.7% year-on-year (y-o-y) increase in its annualised premium equivalent (APE) as against a 3.7% y-o-y increase reported by all private players. It was also far better than the over 13% y-o-y drop in APE reported by other major life insurance companies such as ICICI Prudential (which posted a 15.8% y-o-y decline in its APE) and Bajaj Allianz (that reported a 13.8% y-o-y drop). Additionally, where BSLI saw its market share increasing to 9.1% YTD FY2010, other major players witnessed their market share shrink. -
The asset management business under the financial services segment also posted strong performance. The company?s joint venture, BSLAM, recorded a 61.4% y-o-y increase in its asset under management (AUM) on a YTD basis as against a 36.1% YTD growth for private players. Furthermore, BSLAM?s market share has also improved significantly to 11% YTD FY2010. -
The company is also planning to re-structure its businesses to rationalise cost. In line with this, the company plans to merge its three wholly-owned garment subsidiaries?Madura Garments Exports, MG Lifestyle Clothing and Peter England Fashions and Retail?with itself. These initiatives would help the company to rationalise cost, as synergies would come in the form of reduction in administrative and general expenses. The company is also mulling to bring all its financial services business under one holding company. In our view the move is aimed to tap the synergy of the group's various financial services entities. -
With improving business fundamentals, we believe the cash flow from value businesses (insulators, textiles, fertilisers, carbon black and rayon) would also improve significantly going forward. This will bring on track the company?s strategy to fund its growth businesses (garments, life insurance, financial services, BPO & IT and telecom) from the surplus cash flow generated from the value businesses. -
We maintain our Buy recommendation on the stock with a price target of Rs1,030. We have taken into account 11.4 crore fully-diluted shares, including warrant conversions, to arrive at our fair value. At the current market price, the stock trades at a price/earnings (PE) of 35.3x FY2011E stand-alone earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 13.8x FY2011E.
SHAREKHAN SPECIAL Monthly economy review Economy: IIP growth at 16 year high -
The Index of Industrial Production (IIP) for December 2009 rose at its fastest rate in 16 years, registering a growth of 16.8% year on year (yoy). The growth in the industrial output during December 2009 was broad based and spanned across segments.The manufacturing segment posted the highest growth of a strong 18.5% yoy followed by the mining and electricity segments with 9.5% y-o-y and 5.4% y-o-y growth respectively. -
The inflation rate for January 2010 came in at 8.56%, which stood above the consensus estimate of 8.26% yoy. The inflation rate for January 2010 indicates a 125-basis-point increase from the December 2009 inflation rate of 7.31%, led primarily by the rising prices of food products and articles. -
India?s trade deficit for December 2009 came in at USD10.14 billion, increasing on both year-on-year (y-o-y) and sequential bases by 66.7% and 4.7% respectively. Notably, the exports continued to expand during December 2009 and registered a y-o-y growth of 9.3%. Importantly, the import growth turned positive during the month registering a 27.2% growth on a y-o-y basis. -
Concerns have surfaced recently over the ability of the Greek government to honour its debt obligations as the Greek fiscal deficit is threatening to reach approximately 12% of the nation?s output. Importantly, many other European nations (Portugal, Ireland, Spain etc) too are in a similar situation and may only add to the fears of sovereign defaults (read more under ?Global round-up?). Banking: CRR hiked by 75 basis points -
The credit offtake (non-food) registered a growth of 15.2% yoy (as on January 29, 2010), which was higher than the 14.4% y-o-y growth seen during the previous period (January 15, 2010). -
Deposits registered a growth of 17.1% yoy (as on January 29, 2010), which was higher than the 16.8% y-o-y growth seen during the previous period (January 15, 2010). -
The credit-deposit (CD) ratio remained more or less stable at 69.5% (as on January 29, 2010), in line with the 69.9% CD ratio during the period ended January 15, 2010. -
The money supply (M3) growth as on January 29, 2010 stood at 17% yoy, higher than the 16.5% y-o-y growth seen during the period ended January 15, 2010. -
The yields on the government securities (G-Secs; ten-year) stood at 7.87% as on February 19, 2010, up by 23 basis points from the previous month?s level. The G-Sec yields for all the other maturities expanded on a month-on-month (m-o-m) basis with the five-year and three-year yields expanding by 32 basis points and 63 basis points respectively. The G-Sec yields rose due to the combined effect of rising inflation and expectations of the government taking measures towards fiscal consolidation. -
The Reserve Bank of India (RBI) hiked the cash reserve ratio (CRR) by 75 basis points to 5.75%, which signals a shift in its stance to a distinctively hawkish one in a bid to contain the spiraling inflation. However, the challenge for the RBI remains as the sustainability of the global recovery is still viewed with caution and inflationary pressures in food items are threatening to become more widespread. Equity markets: Average daily volumes contract -
During the month-till-date (MTD) period (February 1-19, 2010), the average daily volumes contracted in both the cash, and futures and options (F&O) segments. -
The total industry average assets under management (AUM; equity + debt) declined by 4.1% month on month (mom) during January 2010. The net resources mobilised in equity schemes during January 2010 stood at Rs1,571 crore as the resources raised through the new and the existing schemes outpaced the redemptions. -
During the MTD period in February 2010 (February 01-18, 2010), the foreign institutional investors (FIIs) and the domestic mutual funds (MFs) remained net sellers. Life insurance: Private players outperform LIC -
The annualised premium earnings (APE) for the life insurance industry grew by a muted 2.3% yoy after registering a growth of 58.9% yoy in the previous month. -
In January 2010, the gross premium underwritten for the general insurance industry grew by 15% yoy, higher than the 13.4% y-o-y growth seen in the previous month. The private sector players posted a healthy growth of 20.5% yoy while the public sector players registered a growth of 10.9% yoy during the month.
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