Investor's Eye: Update - Aditya Birla Nuvo, Construction

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Investor's Eye [May 20, 2014]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE     Aditya Birla Nuvo Recommendation: Buy Price target: Rs1,550 Current market price: Rs1,243   Price target revised to Rs1,550    Result highlights Aditya Birla Nuvo Ltd (ABNL)'s Q4FY2014 result is not directly comparable on a Y-o-Y basis, as last years' performance included the carbon black business, which was sold off in April 2013. Excluding the impact on a like-to-like basis, the overall performance was good, with a revenue growth at 10% YoY. Led by efficiencies in the business verticals (barring the acquired Pantaloons and fertiliser businesses owing to a plant shut-down), the operating profit grew by 23.8% YoY, while the net earnings were impacted by one-offs. Excluding the one-offs, the adjusted profit grew by 42% YoY from Rs199 crore in Q4FY2013 to Rs283 crore in Q4FY2014. The company sounded confident on its non-banking finance business and continues to nurture its plans to grow the loan book size. Further, on the life insurance vertical, it sounded positive on the product portfolio front and expects a revival in the business with a recovery in the macro-economy front, while the acquired Pantaloons business would be in the investment mode for FY2015 as well. ABNL's strong positioning in each of the business verticals it operates in (life insurance, telecommunication, lifestyle and asset management) along with its quest for profitable growth and attractive valuation keeps us positive and hence we maintain our Buy rating with a revised price target of Rs1,550 (valuation based on SoTP method).      SECTOR UPDATE   Construction   Road developers set to reap benefits of uptick in road sector investment   Key points NHAI's project award trend during FY2013-14 has been dismal over the last five years with 1,250km awarded on an average during the fiscal compared with an average of 5,500km awarded during FY2010-14. The incoming government is likely to address the issues plaguing the road sector, like land acquisition, forest and environmental clearances and rebidding of stalled projects, in order to increase the project award activity in the sector.  The formation of a stable government is likely to boost build-operate-transfer (BOT) project award activity and only a few large established players would be able to get the bulk of such projects; that too on much better terms due to weak competition from most of the other players (due to stressed balance sheets and funding constraints). We expect the large established players like Larsen & Toubro (L&T), IL&FS Transportation Networks (ITNL), IRB Infrastructure Developers (IRB Infra) and Ashoka Buildcon to improve their book/bill ratio and bag higher-return projects over the next five years. The outlook has certainly improved for the large road players and is visible in the renewed interest of the large institutional investors in some of the established names, like ITNL, L&T, Ashoka Buildcon and IRB Infra. We have revised our price target for ITNL to Rs284 and that for IRB Infra to Rs221, rolling forward our DCF valuation for their projects to FY2016 estimates and increasing the multiple for their engineering, procurement and construction (EPC) business. Click here to read report: Investor's Eye         Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team

 

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