Growth prospects bright but diverse play a valuation hurdle for Aditya Birla Nuvo

A strong show by telecom firm Idea and also smaller segments such as financial services, rayon yarn and BPO & IT enabled Aditya Birla Nuvo ( ABNL) to post a 5% growth in the quarter to June. The performance of the carbon black, fertilisers , garments and insulators segments were dismal due to various reasons.

For ABNL, the telecom subsidiary, Idea, represents its single-largest business segment, accounting for 26% of its consolidated revenues and 29.1% of its preinterest-and-tax profits (PBIT) in the quarter. A strong performance in this segment was the key positive for ABNL’s consolidated performance.

ABNL’s second-biggest segment, financial services, also did reasonably well although the revenues from its insurance business slipped 4.6% to Rs 1,088.4 crore yo-y. Other financial services performed better with a 46.5% revenue growth at . 229.8 crore, while the segment’s profits more than doubled to Rs 35 crore.

This was supported by Aditya Birla Money’s growing market share in retail cash equity broking, which rose from 1% a year ago to 1.5%, and in commodity broking, which grew from 0.28% to 0.44%. Similarly, Aditya Birla Finance’s loan book more than doubled to Rs 4,250 crore from a year ago.

The company’s smaller divisions such as rayon yarn and textiles did well as raw material costs softened while realisations improved. Profit of the BPO and IT segment more than doubled to Rs 19 crore on faster order book conversion and due to a weak rupee.

The carbon black and insulators businesses were the worst hit as sales volumes dropped y-o-y due to dumping from China. The fertiliser segment’s performance was dismal due to a 20-day planned maintenance shutdown in its urea plant. Aditya Birla Nuvo trades at 9.9 times its 12-month trailing profits.

This valuation is more in line with its commodity chemical and fertiliser businesses than the telecom or financial services businesses, which should command a better multiple. Although the company’s growth prospects appear promising, its presence across several industries will hamper its valuations.