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PRIME BROKING

August 17, 2011

ADITYA BIRLA NUVO LIMITED (ABNL)

CMP: Rs. 873; STRONG BUY


Q1FY12 Result Update Target Price: Rs. 1,335

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 16,748 994/710 994/869 99,049 2,226 172,724
Q1FY12 CONSOLIDATED PERFORMANCE

Aditya Birla Nuvo continued its strong performance across its various businesses. Its life insurance business contributed significantly to the bottomline during Q1FY12 because of its growing in-force book, lower new business strain and better expense management. The company reported:

. . . .

Revenues at Rs. 47,675 mn were up by 23.6% YoY EBITDA was up significantly by 45.5% YoY to Rs. 7,475 as EBITDA margin improved from 13.3% in Q1FY11 to 15.7% in Q1FY12 on account of improved operational performance of the life insurance, telecom, fashion & lifestyle and manufacturing businesses Depreciation was up by 17.9% YoY to Rs. 2,608 mn and interest costs were up 43.2% YoY to Rs. 1,938 mn. Profit before tax was up substantially by 77.2% YoY to Rs. 3,530 mn; net profit at Rs. 2,532 mn was up by 70.1% YoY

Valuation Parameters (FY 12)

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


Price Chart
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5.6 3.2 0.8 0.4

OUTLOOK

Life Insurance business to continue its strong performance The life insurance business continues to build on its strong performance during FY11. While new business premium de-grew by 39% YoY for the life insurance industry on account of new guidelines, Birla Sun Life Insurance reported second lowest de-growth among the top 7 private life insurers. Its market share among private players in terms of weighted new business premium increased to 8.8% from 8.1% in Q1FY11.

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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. Idea Cellular to add value through margin expansion Idea Cellular, which is serving a large base of over 95 mn subscribers currently, is expected to see margin expansion as it benefits from improving pricing environment in the telecom sector as witnessed in the recent tariff hikes. Further, its rising revenue share and cost efficiencies are also expected to help improve margins. Capacity 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. 1

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

PRIME BROKING
VALUATION

Our sum-of-the-parts (SOTP) valuation of Aditya Birla Nuvo is Rs. 1,335 implying an upside potential of about 53% over CMP. Exhibit: SOTP Valuation Business Financial Services - Life Insurance Enterprise ABNLs ABNLs Share Valuation Methodology Value (Rs. mn) Stake (%) of EV (Rs. mn) 98,894 74.0 73,182 As on March 31, 2012: Embedded Value: Rs. 51,453 mn VNB: Rs. 3,403 mn VNB Margin: 18.0% Multiplier: 14.0x 11,620 3.0% of AUM 9,930 P/B of 2.0x FY12E BV 849 EV/EBITDA of 5.0x FY12E no.s 77,782 @ Idea Cellulars CMP of Rs. 92.8/share 10,082 MCap/Sales of 0.6x FY12E Sales 12,482 EV/Sales of 0.6x FY12E Sales 39,744 EV/EBITDA of 5.0x FY12E no.s 235,671 57,401 178,269 15.0% 151,529 114 1,335

- 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

23,240 9,930 849 306,589 11,421 12,482 39,744

50.0 100.0 100.0 25.4 88.3 100.0 100.0

The key downside risks are: 1) Exposure to the risk of fluctuation in prices of raw materials as well as finished goods across its various business segments 2) Exposure to fluctuations in exchange rates of various foreign currencies on its revenues/expenses as well as it multi-currency debt portfolio 3) Price controls and other regulatory risks

ADITYA BIRLA NUVO LIMITED

PRIME BROKING
Annexure I: Quarterly Consolidated Performance
Rs mn Sales EBITDA margin (%) Depreciation PBIT Interest Other income EO PBT Tax PAT Share in profit in associates/JV Minority Interest Adjusted PAT NPM (%) Source: Company, Prime Broking Q1FY12 47,675 7,475 15.7% 2,608 5,468 1,938 602 3,530 614 2,916 0 384 2,532 5.2% Q1FY11 38,570 5,137 13.3% 2,213 3,345 1,354 422 1,992 445 1,547 0 58 1,489 3.8% 557.2% 70.1% 77.2% 38.1% 88.5% 17.9% 63.4% 43.2% 42.6% YoY 23.6% 45.5%

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) 144,652 -5,573 139,080 130,406 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) 156,198 41,363 197,561 180,699 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) 181,674 16,542 198,216 171,200 27,016 13.6 9,407 17,610 8.9 5,661 1,038 10,910 5.5 1,831 9,080 859 0 8,221 4.1 114 72.4 FY12 (E) 210,518 19,482 230,000 197,432 32,568 14.2 10,035 22,533 9.8 6,465 0 16,068 7.0 2,696 13,372 1,601 0 11,771 5.1 114 103.7 FY13 (E) 239,334 27,612 266,946 229,177 37,769 14.1 10,349 27,420 10.3 5,811 0 21,609 8.1 3,626 17,983 1,840 0 16,143 6.0 114 142.2

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 74,386 1,858 2,440 153,535 2,984 289,951 69,884 28,923 169,599 7,948 47,466 33,869 21,545 289,951 FY11 (A) 1,611 65,172 66,783 93,009 2,785 2,645 185,201 4,570 354,992 89,914 28,923 208,049 8,506 60,949 41,348 28,106 354,992 FY12 (E) 1,611 76,322 77,933 85,009 4,385 2,645 228,863 4,570 403,405 90,989 28,923 251,711 11,333 64,232 43,784 31,782 403,405 FY13 (E) 1,611 91,844 93,455 75,009 6,225 2,645 283,844 4,570 465,747 90,501 28,923 306,693 15,861 74,558 50,788 39,631 465,747

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 53,784 -42 -1,685 67,789 -14,045 -43,973 102 -2,027 -59,943 6,931 -15,161 -6,540 -463 -15,233 -7,387 15,336 7,948 FY11 (E) 10,910 9,407 4,708 33,169 -6,004 -1,831 50,359 -29,436 -38,426 102 1,356 -66,404 4,262 18,623 -5,661 -621 16,602 557 7,948 8,506 FY12 (E) 16,068 10,035 5,512 43,075 -848 -2,696 71,146 -11,061 -43,662 102 1,389 -53,232 0 -8,000 -6,465 -621 -15,086 2,828 8,506 11,333 FY13 (E) 21,609 10,349 4,858 54,409 -3,321 -3,626 84,277 -9,861 -54,981 102 1,424 -63,317 0 -10,000 -5,811 -621 -16,433 4,528 11,333 15,861

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% 138.0% 2.9% 0.8% 1.3 0.9 18 24 0.5% 2.0% FY11 (A) 0.7% 74.9% 8.0% 4.1% 1.3 2.8 23 26 2.3% 4.4% FY12 (E) 16.2% 21.9% 9.1% 5.1% 1.0 3.2 23 28 2.9% 5.1% FY13 (E) 16.2% 16.8% 9.6% 6.0% 0.8 4.4 22 27 3.5% 5.5%

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

No 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