PRIME BROKING

November 02, 2011

ADITYA BIRLA NUVO LIMITED (ABNL)

CMP: Rs. 954; STRONG BUY

Q2FY12 Result Update Target Price: Rs. 1,274

Result Update
Reuters code Bloomberg Code BSE Sensex 52week H/L (Rs) Monthly H/L (Rs) MktCap (Rs mn) MktCap (US$ mn) EV (Rs mn) ABRL.BO ABNL IN 500303 17,465 994/710 974/862 108,288 2,210 194,950
Q2FY12 CONSOLIDATED PERFORMANCE

Aditya Birla Nuvo posted strong earnings during Q2FY12 and strengthened its leadership position in financial services, telecom and fashion & lifestyle businesses. The company reported:

. . . .

Revenues at Rs. 53,418 mn were up by 17.8% YoY EBITDA was up significantly by 27.2% YoY to Rs. 7,248 as EBITDA margin improved from 12.6% in Q2FY11 to 13.6% in Q2FY12 on account of improved operational performance of the life insurance, telecom and fashion & lifestyle businesses Depreciation was up by 17.9% YoY to Rs. 2,733 mn and interest costs were up 56.5% YoY to Rs. 2,115 mn Profit before tax at Rs. 2,942 mn was up substantially by 95.5% YoY as the one-time exceptional loss of Rs. 1,038 mn borne last year by the subsidiaries of the company adversely impacted PBT in Q2FY11; net profit was up by 104.5% YoY at Rs. 2,143 mn

Valuation Parameters (FY 12)

EV/EBITDA MktCap/EBITDA EV/Sales Mkt Cap/Sales

Price Chart
15 0

6.5 3.6 0.9 0.5

OUTLOOK

Financial services business to continue its strong performance Aditya Birla Financial Services continues to post strong growth in bottom-line as its life insurance, asset management and NBFC businesses continue to register strong performances during FY12.
Nov '10 May '11 Sep '11 Mar '11 Jan '11 Jul '11

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Shareholding Pattern

We expect the life insurance business to continue its strong performance on the back of its growing in-force book, lower new business strain, balanced product mix between non-ULIP and ULIP products and better expense management. Also, ability of its asset management business to increase market share profitably will drive earnings, which are currently under pressure across the industry due to reduction in assets under management (AUM). Further, growth in book size of its NBFC arm, diversification of its portfolio to include infrastructure financing and strengthening of its management team should help its NBFC business to grow profitably while managing risk optimally. Idea Cellular to benefit from long term opportunities Idea Cellular is expected to benefit from improving pricing environment as the highly-competitive phase in the telecom sector comes to an end. With its rising revenue share and scale-driven cost efficiencies, Idea Cellular is well positioned to benefit from the long term opportunities in the telecom sector. 1

Rohit Sanghavi 91-22-2498 1515 rohit@primesec.com ADITYA BIRLA NUVO LIMITED

PRIME BROKING
Volume growth and margin expansion to drive manufacturing businesses We expect capacity expansion in Carbon Black, Caustic Soda and Insulators businesses and robust demand in textiles business to drive revenue growth for this segment. Improvement in operational efficiencies, along with ability to pass on rise in input and fuel costs, is expected to improve margins across its various manufacturing businesses.
VALUATION

Our sum-of-the-parts (SOTP) valuation of Aditya Birla Nuvo is Rs. 1,274 implying an upside potential of about 34% over CMP. Exhibit: SOTP Valuation Business Financial Services - Life Insurance Enterprise ABNLs ABNLs Share Valuation Methodology Value (Rs. mn) Stake (%) of EV (Rs. mn) 97,586 74.0 72,214 As on March 31, 2012: Embedded Value: Rs. 49,943 mn VNB: Rs. 3,403 mn VNB Margin: 18.0% Multiplier: 14.0x 11,001 3.0% of AUM 10,355 P/B of 2.0x FY12E BV 520 EV/EBITDA of 5.0x FY12E no.s 78,757 @ Idea Cellulars CMP of Rs. 93.9/share 11,388 MCap/Sales of 0.6x FY12E Sales 13,025 EV/Sales of 0.6x FY12E Sales 41,712 EV/EBITDA of 5.0x FY12E no.s 238,972 68,860 170,112 15.0% 144,595 114 1,274

- Asset Management - Non-Banking Finance - Other Financial Services (Broking, WM, Ins. Advisory) Telecommunication IT/ITeS Fashion & Lifestyle Manufacturing Total Enterprise Value (Rs. mn) Less: Net Debt (Rs. mn) Business Value (Rs. mn) Conglomerate Discount Adjusted Business Value (Rs. mn) No. of Shares Outstanding Per Share Value (Rs./share)
Source: Prime Broking KEY RISKS

22,003 10,355 520 310,434 11,421 13,025 41,712

50.0 100.0 100.0 25.4 99.7 100.0 100.0

The key downside risks are: 1) Exposure to fluctuation in prices of raw materials as well as finished goods across its various businesses 2) Exposure to fluctuation in exchange rates on its revenues, expenses and multi-currency debt portfolio 3) Price controls and other regulatory risks

ADITYA BIRLA NUVO LIMITED

PRIME BROKING
Annexure I: Quarterly Consolidated Performance
Var (%) Rs mn Sales EBITDA margin (%) Depreciation PBIT Interest Other income EO PBT Tax PAT Share in profit in associates/JV Minority Interest and Other Related Items Adjusted PAT NPM (%) Source: Company, Prime Broking Q2FY12 53,418 7,248 13.6 2,733 5,056 2,115 542 0 2,942 541 2,400 0 258 2,143 4.0 Q1FY12 47,675 7,475 15.7 2,608 5,468 1,938 602 0 3,530 614 2,916 0 384 2,532 5.2 Q2FY11 45,329 5,699 12.6 2,319 3,895 1,352 514 1,038 1,505 393 1,112 0 64 1,048 2.3 -32.8% -15.4% 304.7% 104.5% -16.7% -11.9% -17.7% 95.5% 37.7% 115.9% 4.8% -7.5% 9.1% -9.9% 17.9% 29.8% 56.5% 5.4% QoQ 12.0% -3.0% YoY 17.8% 27.2%

Annexure II: Consolidated Profit & Loss Statement

Rs mn Net Revenues (incl. Other Income) Investment Inc./(Loss) on Policyholders Fund Total Operating Income Total Expenses PBITDA PBITDA Margin (%) Depreciation PBIT PBIT Margin (%) Interest EO PBT PBT Margin (%) Tax PAT Less: Minority Interest Add: Share of Profit from Associates Adjusted PAT Net Profit Margin No. of shares EPS FY09 (A) 145,786 -6,707 139,080 130,406 8,674 6.2 6,956 1,718 1.2 7,210 0 -5,493 -3.9 811 -6,303 -1,946 0 -4,357 -3.1 95 -45.9 FY10 (A) 157,699 39,869 197,569 180,707 16,862 8.5 8,665 8,197 4.1 6,622 0 1,576 0.8 1,140 436 -1,110 0 1,546 0.8 103 15.0 FY11 (A) 183,530 14,687 198,217 171,200 27,016 13.6 9,407 17,610 8.9 5,661 1,038 10,911 5.5 1,831 9,080 859 0 8,221 4.1 114 72.4 FY12 (E) 220,793 -554 220,239 188,927 31,312 14.2 10,676 20,636 9.4 8,101 0 12,535 5.7 2,256 10,279 1,339 0 8,939 4.1 114 78.8 FY13 (E) 250,289 25,485 275,774 239,803 35,971 13.0 10,555 25,415 9.2 7,611 0 17,804 6.5 3,205 14,599 1,428 0 13,171 4.8 114 116.0

Source: Company, Prime Broking; (A) Audited; (E) Estimated

ADITYA BIRLA NUVO LIMITED

PRIME BROKING
Annexure III: Consolidated Balance Sheet Statement
Rs mn Share Capital, Warrants, etc Reserves & Surplus Networth Loan Funds Minority Interest Deferred Tax Liability Policyholders Fund Fund for Future Appropriations Total Liabilities Net Fixed Assets Goodwill on Consolidation Investments, etc Cash & Bank Balances Other Current Assets Current Liabilities Net Current Assets Total Assets FY09 (A) 5,049 52,374 57,423 88,868 1,793 2,220 85,969 1,290 237,561 66,720 34,226 110,846 15,344 41,035 30,609 25,769 237,561 FY10 (A) 2,853 51,894 54,748 74,324 1,858 2,440 153,535 2,984 289,889 69,884 28,923 169,599 7,948 47,334 33,799 21,483 289,889 FY11 (A) 1,611 65,172 66,783 93,009 2,785 2,645 185,201 4,570 354,992 88,886 29,951 208,049 8,506 60,949 41,348 28,106 354,992 FY12 (E) 1,611 73,386 74,997 103,009 4,124 2,645 210,586 4,570 399,930 91,524 29,951 234,961 16,347 74,638 47,492 43,494 399,930 FY13 (E) 1,611 85,831 87,442 93,009 5,552 2,645 266,531 4,570 459,749 92,913 29,951 290,907 15,252 89,514 58,788 45,978 459,749

Source: Company, Prime Broking; (A) Audited; (E) Estimated

Annexure IV: Consolidated Cash Flow Statement

Rs mn Profit After Tax Depreciation Net Interest Other Items Change in Working Capital Income Tax Paid & Other Adjustments Cash Flow from Operations Change in Net Fixed Assets Change in Investments Dividend Received Other Items Cash Flow from Investing Change in Capital Change in Borrowings Interest Paid Dividend Paid Cash Flow from Financing Change in Cash Opening Cash & Bank Balance Closing Cash & Bank Balance FY09 (A) -5,493 6,959 5,566 23,773 6,678 -2,003 35,480 -31,144 -42,242 113 -1,044 -74,318 27,386 25,056 -5,543 -662 46,238 7,400 7,944 15,344 FY10 (A) 1,576 8,818 5,338 28,307 6 -1,685 42,360 -14,045 -18,244 102 -2,027 -34,214 6,931 -15,461 -6,540 -463 -15,534 -7,387 15,336 7,948 FY11 (A) 10,911 9,521 4,354 17,797 184 -2,115 40,652 -29,318 -23,372 81 5,079 -47,530 4,335 8,450 -4,729 -621 7,435 557 7,948 8,506 FY12 (E) 12,535 10,676 7,491 24,869 -7,545 -2,256 45,769 -13,315 -26,912 81 1,046 -39,100 0 10,000 -8,101 -726 1,173 7,842 8,506 16,347 FY13 (E) 17,804 10,555 7,001 55,394 -3,580 -3,205 83,969 -11,944 -55,945 81 1,081 -66,728 0 -10,000 -7,611 -726 -18,337 -1,096 16,347 15,252

Source: Company, Prime Broking; (A) Audited; (E) Estimated

ADITYA BIRLA NUVO LIMITED

PRIME BROKING
Annexure V: Key Financial Ratios
FY09 (A) Net Sales Growth EBITDA Growth EBIT Margin Net Profit Margin Debt to Equity Ratio Interest Coverage Ratio Inventory Turnover (Days) Debtor Turnover (Days) Return on Asset Return on Equity 14.3% -41.2% -0.7% -3.1% 1.5 24 34 -1.8% -0.4% FY10 (A) 43.0% 138.2% 2.9% 0.8% 1.3 0.9 18 23 0.5% 2.0% FY11 (A) 0.6% 74.8% 8.0% 4.1% 1.3 2.8 24 25 2.3% 4.4% FY12 (E) 11.5% 19.4% 8.8% 4.1% 1.3 2.4 28 30 2.2% 4.8% FY13 (E) 25.3% 15.4% 8.8% 4.8% 1.0 3.2 27 29 2.9% 5.2%

Source: Company, Prime Broking; (A) Audited; (E) Estimated

ADITYA BIRLA NUVO LIMITED

PRIME BROKING

EQUITY SALES / DEALING

TEL.: +91-22-24982525

Vinay Motwani Sumeet Rewari Nitin Khivasara Nitin Shah

Head of Sales & Distribution VP - Equity Sales VP - Equity Sales Dealer - Equities

vinay@primesec.com sumeetrewari@primesec.com nitinkhivasara@primesec.com nitin@primesec.com

STOCK OWNERSHIP / CONFLICT DISCLOSURE

Prime / Prime Subsidiaries Key Prime Management &/or Other Employees Any Other Corporate Finance Conflict of Interest

Yes Yes No

ANALYSTS RATINGS DEFINITIONS

STRONG BUY BUY HOLD SELL

Expect 25% CAGR return Expect a CAGR return 15% and 25% Expect 15% CAGR return Expect 5% CAGR return

CONTACT NUMBERS Dealing: +91 22 24982525 Research: +91 22 24981515

This document has been prepared by Prime Broking Company (India) Limited (Prime). The information, analysis and estimates contained herein are based on Primes assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only.This document, at best, represents Primes opinion and is meant for general information only. Prime, its Directors, Officers or Employees shall not in any way be responsible for the contents stated herein. Prime expressly disclaims any and all liability that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell, or a solicitation to buy any securities. Prime, its affiliates and their employees may from time to time hold positions in the securities referred to herein. Prime or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.

ADITYA BIRLA NUVO LIMITED