Stock Review: Aditya Birla Nuvo

Aditya Birla Nuvo (ABNL) is a diversified business conglomerate formed through a merger of Indian Rayon, Birla Global Finance and Indo Gulf Fertilisers in 2005. ABNL is the holding company of several subsidiaries and has business interests in insurance, asset management, financial services, garments, carbon black, insulators, rayon, fertilisers, IT and ITeS businesses. The company also holds about 25% stake in listed telecom company, Idea Cellular. The market value of its investments in other group companies — 25.4% stake in Idea Cellular and 1.75% in Hindalco — accounts for nearly 80% of ABNL's market value. The company's largest profit contributing segments in 2009 — telecom, rayon yarn and fertilisers — are perceived as having stagnated in 2010. However, it has turned around some of its largest loss-making segments such as garments, insurance and BPO & IT. This has enabled the firm to report a profit of 442 crore for the 12-month period ended September 2010 against a loss of 337 crore a year ago. However, the scrip lost nearly 20% over the past one year against a 15% gain in the Sensex. The scrip is trading at around 19 times its consolidated earnings for the past one year, with a dividend yield of 0.6% and a price-to-book-value below 1.7. Based on the sum of the parts method, its share price is valued between 950 and 1,150 after giving a 20-30% conglomerate discount. The company is using strong cash flows from its manufacturing businesses to grow its nonmanufacturing or services verticals. It plans to list its financial services and IT services arms. This could be a mega-trigger for the company's future valuation growth.