THOMAS COOK INDIA LTD: IT's MUCH MORE THAN A TRAVEL COMPANY !!!

Scrip Code: 500413 / THOMASCOOK

CMP:  Rs. 211.65; Market Cap: Rs. 5,385.46 Cr; 52 Week High/Low: Rs. 220.50 / Rs. 82.05

Total Shares: 25,44,51,587 shares; Promoters : 18,56,53,725 shares – 72.96 %; Total Public holding : 6,87,97,862 shares – 27.04 %; Book Value: Rs. 20.19; Face Value: Rs. 1.00; EPS: Rs. 3.58; Dividend: 37.50 %; P/E: 59.12 times; Ind. P/E: 62.30; EV/EBITDA: 21.97.

Total Debt: Rs. 180.25; Enterprise Value: Rs. 5,417.82 Cr.

THOMAS COOK (INDIA) LIMITED: The Company was founded in 1881 and was incorporated in 1978, based in Mumbai, India. Thomas Cook (India) Limited is a former subsidiary of TCIM Limited, UK. Thomas Cook (India) Limited provides foreign exchange services, and travel and travel related services in India and internationally. The company came with an IPO in Dec 1982 offering 2,80,000 Shares of Rs. 10 each issued at par. The company’s foreign exchange services include retail purchase of foreign currencies and travellers’ cheques; bulk purchase-sale of foreign currencies from-to authorized dealers, money changers, and franchisees; release-remittance of foreign exchange; and encashment of mail-telegraphic transfers, demand drafts, and other forex instruments. The company’s foreign exchange services also consist of collection of foreign currency instruments drawn on banks; provision of Indian rupee-foreign currency advances against credit cards; and provision of travel related foreign exchange and payment solutions. It offers foreign exchange and payment solutions for leisure and business travellers, students going abroad for higher studies, people travelling for employment, medical treatment, emigration, etc. The company also offers travel related services comprising outbound, inbound, corporate, and domestic travel services; and meetings, incentives, conferences, and events. In addition, it provides travel insurance services, and visa and passport services. Further, the company operates its online portal thomascook.in that offers a range of travel and travel related solutions to its customers; and provides post graduate diploma in management in international business focusing on tourism. Thomas Cook’s Subsidiaries include: Travel Corporation (India) Ltd, TC Visa Services (India) Ltd, Thomas Cook Insurance Services (India) Ltd, Indian Horizon Travel & Tours Ltd, Thomas Cook Lanka (Private) Ltd, Thomas Cook Tours Ltd, Thomas Cook (Mauritius) Holding Company Ltd, Thomas Cook (Mauritius) Holidays Ltd, Thomas Cook (Mauritius) Travel Ltd, Thomas Cook (Mauritius) Operation Co Ltd. Currently, it has presence over 245 locations including 23 airport counters in 100 cities across India, Mauritius and Sri Lanka and is supported by strong partner network of 133 Gold Circle partners and 165 preferred sales agents in over 150 cities across India. On pan India level, the company has office located at Mumbai, Pune, New Delhi, Gurgaon, Chandigarh, Agra, Ahmedabad, Bangalore, Baroda, Bhubhaneshwar, Chennai, Cochin, Goa, Hyderabad, Jaipur, Jalandhar, Kolkata, Trivandrum and Vishakapatnam. With over 125 years of presence in India TCIL is focused on providing a broad spectrum of travel-related services that include foreign exchange, corporate travel, leisure travel, and insurance. The company’s overseas subsidiaries offices are located at Sri Lanka, Mauritius, Germany, France, Spain, Canada, UK, USA, Australia, Japan, Korea and China. The company has employee strength of over 3000 people. Thomas Cook India Ltd is locally compared with Cox & Kings Ltd, International travel Ltd, Trade Wings Ltd, Sharyans Resources Ltd, Ace Tours Worldwide Ltd and Globally compared with Star Travel Corporation of Taiwan, Reliance Pacific Berhad of Malaysia, Eurasia Travel Company Ltd of Japan, Phoenix Tours International Inc of Taiwan, Zhanqjiajie Tourism Co of China, Xi’an Toursim Co. Ltd of China, Nikko Travel Co., Ltd of Japan, Karambunai Corporation Berhad of Malaysia, E-2 Capital Holding Ltd of Hong Kong, Travel Expert (Asia) Enterprises Ltd of Hong Kong, Sanbumi Holdings Berhad of Malaysian, South China Holdings Ltd of Hong Kong. 

Investment Rationale:

Thomas Cook India Limited is the leading integrated travel & travel related financial services company in the country offering a broad spectrum of services that include foreign exchange, corporate travel MICE, leisure travel, insurance, visa & passport services and E – business. In, May 2012, 73 % stake of Thomas Cook India Limited was acquired by Fairbridge Capital (Mauritius), a wholly owned subsidiary of Toronto based Fairfax Financial Holdings Ltd which is a financial services holding company with a global presence in insurance and reinsurance and has a portfolio of assets in excess of $30 billion which are invested worldwide and is owned by the legendary value investor Prem Watsa. Thomas Cook India has strengthened its presence in the leisure segment by acquiring Sterling Holiday Resorts (Sterling), which is one of the leading timeshare and vacation ownership players owning 19 resorts with over 1,500 rooms in India. Thomas Cook India has a dominant position of share of more than 50 % in India's foreign currency bank notes exchange business which witness an volume of $1.8 billion from 2012. Both the forex and travel businesses have enduring competitve advantages and huge synergies which enables Thomas Cook India Ltd to deliver Free Cash Flow/Tangible Networth of more than 24 % a year. Fairfax has made its intention clear to use Thomas Cook India Ltd as Fairfax's investment vehicle in India for acquiring other great businesses. The brand name “THOMAS COOK” would be retained for 12.5 years starting from 2012. The management plans to consolidate all the leisure & travel related businesses under Thomas Cook India Ltd, this is with a view to effectively exploit the huge potential in the domestic tourism industry. The acquisition of a 74.85 % stake in Quess Corporation (formerly known as IKYA) in early May 2013 at Rs. 256 crore reflects Mr Watsa’s acumen as an astute investor. Quess Corp was established in 2007 with the key aim to provide business services with interests in human resources (recruitment & general staffing), information technology staffing & services, facilities management, food & hospitality services and training & skill development through a combination of organic and inorganic methods. The company also provides training services at entry levels leading to employment. Quess Corp operates around 34 offices across 22 cities along with a presence in the Middle-East and South East Asia, and employs 80,000 personnel with a client base of more than 850 clients. Quess Corp has exponentially grown its consolidated revenues to Rs. 1,401 crore in FY2014 from merely Rs. 49 crore in FY2009 and now has emerged as a leader in multiple segments like human resources (HR), office management and technology solutions. Quess Corp’s focus is on annuity and recurring income business, which constitutes about 85 % of its earnings before interest, depreciation, tax and amortisation (EBIDTA) margin. Quess Corp had a compounded annual growth rate of about 85 % across last five years in Revenues, last year it did about Rs. 1,400 Cr in revenue with an EBITDA of Rs. 67 Cr. The headcount of the company has increased to 86,000 employees from 25,000 employees in FY2011. Quess Corp has received board approval relating to its long term funding needs and option that could also include coming out with an Initial Public Offering and if Quess is raising funds then it would be issuing new shares and this will not be an divestment for Thomas Cook. Given its exponential growth, strong cash flows and healthy return ratios, it can be expected that it can be a huge value accretion for the shareholders of Thomas Cook India Ltd. Sterling Holiday Resorts (Sterling) is a pioneer in vacation ownership and leading leisure Hospitality Company in India. Thomas Cook announced its merger with Sterling in February 2014. Sterling’s network includes 1,512 rooms across 19 resorts in 16 scenic holiday destinations across India. The company also has 15 additional sites where it plans to add new resorts in the coming years. Sterling Holiday Resorts has improved its operating performance significantly after being acquired by Thomas Cook in early 2014 and its revenues has grown by 32 % and operating loss declined by almost 40 % in the first six months of FY2015. With a well redefined turn-around strategy, the management has guided that the company would turn profitable this year and significantly improve its margins in the coming years. It can be expects the Sterling could post in revenue CAGR of 30 % and an OPM of 28 % for Sterling by FY2017. Thomas Cook India has adopted for assets light model and sterling has an asset heavy one, further, the aspect of utilisation of rooms will now become the prime concern. Thomas Cook being one of the largest integrated travel service companies in India with a strong positioning in the organised tour operator segment and has strong footings in foreign exchange (forex) and financial service business. It also has strong recognition in the domestic market and enjoys an OPM of over 50 %. Thomas Cook’s travel business focuses on outbound tourism and domestic corporate travel, which is expected to improve on the back of an overall improvement in the domestic macro environment. The company would also benefit from a shift from small unorganised tour operators to organised tour operators due to better and unique travel services provided by the latter. Hence, it can be expected that Thomas Cook India Ltd.’s forex and travel service business to grow at about 20 % each in the coming years. 

Outlook and Valuation: 

Thomas Cook India Ltd is one of India’s top three travel service providers and the country’s largest non-banking foreign exchange dealer, with an Authorized Dealer Category II license from the RBI. The forex and travel services businesses complement each other by creating marketing and distribution synergies as well as cross-selling opportunities and scale benefits. The company has a strong backing of the promoter group the FairFax group promoted by Prem Wastsas and he has experience of over 25 years & has demonstrated a strong financial track record to achieve an annual appreciation in Book Value per Share of 24.7 % annually. He is also known as Warren Buffet of Canada. Tours & Travels industry is a major contributor to the world’s major economy’s including India. In Asia Pacific region specifically, the direct contribution of Travel and Tourism to the region’s GDP in 2012 was USD 614 billion which is 2.7 % of GDP and is estimated to be at USD 646 billion in 2014. India and China are expected to emerge as two of the leading tourism markets in next 10 years. The industry is showing signs of recovery following the last economic recession, which saw falling demand for tourism activity as consumers postponed trips to concentrate their household budgets & on more essential areas. As disposable incomes rise and a social trend towards travelling and exploring new destinations grows, the global tourism industry is attracting greater number of consumers who are eager to travel and experience life in other countries or just optimize time off work to unwind by taking holidays. Industry analysts believe that an increase in vacation ownership will also depend upon the prevailing economic climate. Membership growth has been sluggish in past quarters due to the current financial climate, as a person will only invest a few lakh rupees in time-share holidays and vacation ownership if he has surplus cash. Indian economy is witnessing auto sales falling and the property market not moving. These factors have an impact on the resort business. Sterling Holiday was passing through trying times with high debt till Bay Capital took it over in 2009. Since then, the company has been making a return of sorts by refurbishing its resorts. It has increased occupancy levels to 52 % from a lowest of 16 % a few years back. And with the two rounds of equity infusion helped the company repay debt and renovate existing properties. Post general election results, India has been a talking point across the globe and this has helped India in huge surge in foreign tourists coming to India both for business and leisure holidays. In recent past India has been a laggard to attract foreign tourism when compared to countries like Singapore or Thailand. Foreign tourism is likely to pick up in India on all counts be its rich cultural heritage, exotic locations, medical tourism or business related tourism. Government’s renewed focus on travel and tourism and Swach Bharat Abhiyan is likely to boost Thomas Cook’s travel and travel related financial services arm which contributed around 25.50 % of consolidated revenue in FY’14. Though it is a high margin business but it suffers from wide fluctuations on account of foreign exchange movements. Thomas Cook India Ltd’s acquisition of IKYA Human Capital Solutions Limited is yielding rich dividends. IKYA has recently signed an agreement to acquire Hofincons Infotech and Industrial Services Ltd. which is headquartered in Chennai. The company employs more than 6000 people providing a full spectrum of asset management services under operation and maintenance, technology and consulting and facility management. It had reported Revenue of Rs. 131.30 crores and PAT of Rs. 8.23 crores in FY’13. Thomas Cook is expected to deliver strong set of numbers in FY’15 & FY’16 across its business verticals as it leverages on its strong synergies across businesses given the fact that sentiments have turned positive and economy looks poised to return back on growth path. It can be expected from the company to rationalize and get rid of overlapping expenses while achieving better operating efficiency. Thomas Cook is a quality play on the huge growth opportunity in the Indian leisure industry along with an exposure to the fast growing HR and office management business. With an expectation of a 30 % plus growth over the next three to four years and free cash flows exceeding Rs. 1,000 crore cumulatively in the next three years, chances of Thomas Cook India getting re-rated. Any value unlocking in the Quess Corp would also act as a key trigger for Thomas Cook India Ltd’s stock price. This leaves scope for a 40 % upside in the next 9-12 months from the current levels factoring on fully diluted equity capital of Rs. 36.45 crore. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALS	FY14	FY15E	FY16E	FY17E
SALES (₹ Crs)	1,702.40	3,130.80	3,558.30	4,387.00
NET PROFIT (₹ Cr)	65.03	166.70	229.50	368.90
EPS (₹)	2.66	5.60	5.00	8.10
PE (x)	45.12	27.80	38.50	24.00
P/BV (x)	6.40	3.40	4.40	3.70
EV/EBITDA (x)	27.90	17.00	15.10	9.90
ROE (%)	12.20	13.30	16.30	22.60
ROCE (%)	18.70	19.80	22.10	29.20

*As the author of this blog I disclose that I do not hold THOMAS COOK (I) ltd in my investment portfolio.

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Disclaimer: 

This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.

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BERGER PAINTS (I) LTD: ADD COLOURS TO YOUR PORTFOLIO !!!

*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.

Scrip Code: 509480 / BERGEPAINT

CMP:  Rs. 214.10; Market Cap: Rs. 14,843.21 Cr; 52 Week High/Low: Rs. 248.00 / Rs. 102.33. 

Total Shares: 69,32,84,120 shares; Promoters : 51,97,33,336 shares – 74.97 %; Total Public holding : 17,35,50,784 shares –25.03 %; 

Book Value: Rs. 16.33; Face Value: Rs. 1.00; EPS: Rs. 3.65; Dividend: 60.00 %; P/E: 58.65 times; Ind. P/E: 62.00; EV/EBITDA: 28.03.

Total Debt: Rs. 528.19 Cr; Enterprise Value: Rs. 14,917.27 Cr.

BERGER PAINTS INDIA LTD: The Company was founded in 1760 but started its business in Kolkata, India in the year 1923. Berger Paints India Limited was established by Lewis Berger – who laid the foundations of the brand Berger way back in 1760 in the UK, with modest beginnings in India in 1923, the company has undergone many change of hands – In the year 1947, it was acquired by British Paints (Holdings) UK, which renamed the company as British Paints (India). This UK Company was then acquired by Celanese Corporation, which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In 1983, the company was renamed as Berger Paints India and it started using the trade name of Berger. Presently, the majority stake is with the Delhi based Dhingra brothers. Berger Paints engages in the manufacture and sale of various decorative and industrial paints in India and internationally. The company declared its very first bonus in ratio of 1 new for every 2 held on June 1967; 7 new shares for every 15 held on June 1973; 1 new for every 1 held on October 1998; 1 new shares for every 2 held on January 2004 and lastly 3 new shares for every 5 held on June 2006. The company first announced the splits in its face value of shares from Rs. 10 to Rs. 2 on March 2004 and then it again split its face value of shares from Rs. 2 to Rs. 1 on November 2014. The company’s products include interior emulsions, designer finishes, distempers, exterior emulsion, primer, texture finishes, enamels, cement mix, crack fill paste. The company also offers general industrial and automotive coatings, such as pre-treatment chemicals, water base primers, polyester topcoats, polyester-metallic/pearl basecoats, thermosetting acrylic basecoats, thermosetting acrylic clear coats, alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and powder and protective coatings. It serves home owners, professionals, and industrial users through a network of dealers. It has a wide variety of product portfolio including interior and exterior wall coatings as well as metal and wood paints. It has strong and well established brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides colour consultancy services. Berger Paints has six subsidiaries and two JVs located across geographies including Cyprus, Russia, Poland and Nepal. Berger Paints subsidiary includes Beepee Coatings Private Limited, Berger Jenson & Nicholson (Nepal) Pvt Ltd, Berger Paints (Cyprus) Ltd, Lusako Trading Ltd in Cyprus and Berger Paints Overseas ltd. The company is locally compared with Asian Paints Ltd, Kansai Nerolac Paints Limited, Akzo Nobel India Limited, Jenson and Nicholson India Ltd, Jyoti Resins and Adhesive Ltd and Globally compared with Akzo Nobel NV of Netherlands, BASF SE of Germany, Dai Nippon Toryo Co of Tokyo, Dow Chemicals of USA, Schulman (A) Inc of USA, Kraton Performance Polymers Inc of USA, Sherwin Williams Co of USA, PPG Industries of USA, Kanto Denka Kogyo Co of Japan, Noroo Holdings Company Limited, Fujikura Kasei Co Ltd of Japan.

Investment Rationale:

Berger Paints India Limited is the second largest paint company in the country with a consistent track record of being one of the fastest growing paint companies, quarter on quarter, for the past few years. This FMCG has one of the largest networks consisting of 16,500 plus distribution channel members served through 135 stock points & 10 production units with about 170 Sales offices including those belonging to the company’s own division and subsidiaries and has employee strength of 2,500. It has 4 distinct business verticals namely decorative coatings, protective coating, automotive coatings, Industrial and Powder coatings with about 10,000 + products. It has business ventures or technology transfer tie ups with various renowned paint companies in the world like Nippon Bee of Japan and Becker Acroma spa of Italy. Berger Paints India Ltd’s product has attained instant recognition worldwide and continues to meet quality requirements that are demanded today in domestic markets. To meet the surging demand of its brands, the company is undertaking huge expansion projects across various locations in India. The company is confident that this new plant which is strategically located and well connected to Bangalore, Hyderabad, Chennai, kochi and Mumbai will be able to fully meet the increasing demand for water based coatings in commercially important regions of India. The Company’s products have been accepted well in 2013-14 and expect the same kind of support from the customers in the near future also. It is expected that the company to post a CAGR of 11 % & 12 % in its top-line and bottom-line over 2013 to 2016E respectively. There has been significant growth of water based coating both for interior and exterior applications during the last 2 decades in paint industry. This upsurge in demand has been specifically strong in the southern region which provided to set up this new water based paints plant at Hindupur for catering to the requirements of this important region with an initial capacity of 80,000 tonnes per annum. The company starts production in the first half of the current fiscal. Once fully completed, the capacity of the Hindupur plant will be 3,20,000 MT per annum of water based paints and 1,00,000 MT per annum of emulsions, used as intermediates for water based paints. The Jejuri plant for industrial paints too is likely to commence operation this fiscal. Berger currently has 11 manufacturing units in Bengal, Goa, Pondicherry, Andhra Pradesh, Gujarat, Jammu and Delhi. The Indian paint industry is largely divided into decorative and industrial segments. Decorative paints enjoy a market share of 71 % and industrial paints have the balance of 29 %. Decorative paints can be further classified into higher end acrylic exterior and interior emulsions, medium range exterior and interior emulsions and enamel paints, low end distempers, wall putty, primers and thinners and wood coatings. They can also be broadly categorised into water and solvent based paints. Water based paints have an edge and are growing at a higher rate because most paintable surfaces in architectural constructions use water based coatings. It also has the added advantage of being more environmentally friendly. Industrial paints, on the other hand, comprise automotive including auto refinish, general industrial including consumer durables, protective coatings, coil coatings and powder coatings. As in the previous year, in the year 2013-14 too, paint industry volumes as a whole continued to perform well with a growth rate, which is estimated to be more than 2 times of GDP for decorative products. The acceleration underscores the resilience of the industry - brought about by the continuous efforts of the industry to open up new markets, introduce superior products, extending the network and convincing the customers about the benefits of more frequent painting of houses. No doubt, this also reflects growing urbanisation, desires of an ever increasing middle class and reduction in repainting cycle. Despite this, per capita consumption of paints in India is now about 2.6 kg compared to the international average of 10 - 13 kg. The total size of the market is roughly estimated at Rs. 35,000 crores. Given the much anticipated recovery in urban sentiments, GDP revival and the expected fillip to the economy, this may increase to more than Rs. 50,000 crores by 2016-17. Industrial paint demand continued to be lukewarm with sluggish growth in the infrastructure industries, particularly in automobiles, high inflation, a rather tight money market and increase in prices of raw materials. However, with the expected increase in infrastructure spending and recovery of the industry, the Company believes that this sector will bounce back.

Outlook and Valuation:

Berger Paints India Ltd (BPIL) is one of the largest paint company in India with its premium brands viz., Breathe Easy, Silk and Weather coat Allguard continued to perform well in all the markets. Berger paints India ltd is amongst top 30 paints companies in the world with global footprints across continents. It is also amongst the top 6th paint company in Asia. Berger Paints India Limited has it’s headquarter in Kolkata, with 7 strategically located manufacturing units, and over 85 sales offices, the company also has an international presence in 4 countries. Berger is the lone supplier to nuclear power plants with its protective coatings in industries. And also supplies its products to professionals and Home owners. In the recent past, Indian economy had been growing at a rate of less than 5 %. In spite of that, as mentioned earlier in this report, the paint industry in general and Berger Paint in particular, continued to maintain their respective growth trajectory, specifically in the decorative coatings segment. In the coming times, the country will have to contend with issues of inflation control and interest rates, current account and fiscal deficits, subsidies and non-plan expenditure – all the time keeping an eye on eradication of poverty, attraction of investment and generation of employment. The paint Companies believes that these are problems which are surmountable with will and tenacity. Several important policies had been stalled in the recent past and once these are cleared, the paint Companies believes that the paint industry will grow at an even faster pace. In infrastructure, it is reported that out of the projects worth Rs. 22,000 billion & only one-third have been revived in the recent past. In this context, it is important to note that the global paints market is worth about $ 121 billion (2012); with total production being 38 million metric tonnes (MT). In the Asia Pacific region, water based (architectural paints) constitutes 65 % by volume. The Indian paint industry volume and value, by comparison, has far to go. Globally, by volume, the split is approximately 50 % architectural paints and the remaining 50 % - industrial performance coatings. The Asia Pacific region contributes 44 % paints and coatings market. India constitutes only 15 % and China 57 % by volume of the Asia Pacific market. Thus, there is actually a major opportunity of growth in both decorative and industrial segments in India. Recently on 18 February 2015, Berger paints is planning to set up an industrial coating plant at Stavropol, an industrial area in southwest corner of the Russian Federation, which houses several automobile and manufacturing businesses. The company has signed a memorandum of Understanding with Stavropol regional government in this regard. The company has received 6 hectares of land at a very favourable price on a nominal lease till 2030 and production is expected to start in 12 to 15 months. The company will conduct a feasibility study for setting up a modern industrial coating in the region and aims to satisfy the demands in Russia and develop bilateral Co-operation. Berger Paints plans to begin with small investment and increase it gradually and will employ 50 people with a target of 3,000 tonnes per year and then scale up it up to 50,000 tonnes. Around $5 million will be invested to set up the plant in Russia. The management has clearly stated that company has taken care of Indian requirement for the next 5 years post setting up the facility in Hindupur, Andhra Pradesh and will keep on investing in India as and when needed, also the logistical issues in exporting of paint from India to other countries is much more as paint is bulky and so company decided to set up one plant to Russia. Berger Paints has plants in Nepal, Bangladesh, Poland and the overseas turnover accounts for less than 5 % to the total turnover of the company. On financial side the International business saw muted performance impacted by one-off correction in Nepal and flat numbers in BJN India due to consolidation and restructuring exercise in Sherwin Williams. Instability in Ukraine impacted growth in Bolix S.A., while loss of customer in DIY segment continued to impact Poland sales. BNB Coatings continue to show robust sales growth, but Becker Coatings had a flat quarter. Company expects BJN India will be through with its restructuring and will pick up from FY16, while growth in Nepal is also expected to revive from next quarter. The Company’s Q3FY15 revenue was muted, but lower inputs led to higher EBITDA margins. Berger’s Revenues were at Rs. 1,120 Cr, up 8.5 % YOY. The Gross margin was up 2.40 % YoY to 41.9 % led by low input prices, erstwhile price hikes and better mix. But, EBITDA margin expansion was lower at 0.60 % YoY to 13.3 % due to higher Ad spends. The EBIDTA grew 13.3 % YoY to Rs. 150 Cr, but higher depreciation led to flat APAT at Rs. 82.1 Cr. Berger’s reported tepid Domestic operations a 10.8 % YoY growth to Rs. 990 Cr with volume growth at 6 % YoY. Growth in decorative paints was lower due to sluggish demand and early festive season vs previous year. General industrial & auto paints showed healthy growth trends and is expected that the domestic growth to pick up, but in near term, industrial paint sector could outperform decorative growth rates. Given the pricing power ability, it is likely to have uptick in revenue CAGR. While volume growth was tepid, market share gains and display of strong margin expansion is reassuring. It is expected that the domestic growth to revive in ensuing quarters and strong margin tailwinds to flow through in ensuing quarters. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALS	FY14	FY15E	FY16E	FY17E
SALES (₹ Crs)	3,869.70	4,350.90	5,209.20	6,437.60
NET PROFIT (₹ Cr)	249.40	278.60	429.30	566.00
EPS (₹)	3.60	4.00	6.20	8.20
PE (x)	60.50	54.10	35.10	26.60
P/BV (x)	13.50	12.60	11.40	10.20
EV/EBITDA (x)	35.00	29.30	20.40	16.00
ROE (%)	24.10	24.10	34.10	40.60
ROCE (%)	24.50	26.90	37.70	45.50

*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.

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Disclaimer: 

This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.

---------------------------------------------------------------------------------------------

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*Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box..

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ADITYA BIRLA NUVO LTD : HUGE VALUE UNLOCKING OPPOURTUNITY !!!

Scrip Code: 500303 / ABIRLANUVO

CMP:  Rs. 1,735.70; Market Cap: Rs. 22,587.33 Cr; 52 Week High/Low: Rs. 1916.15 / Rs. 1032.25 ; Total Shares: 13,01,33,885 shares; Promoters : 7,44,44,697 shares – 57.21 %; Total Public holding : 5,56,89,188 shares – 42.79 %; Book Value: Rs. 859.77; Face Value: Rs. 10.00; EPS: Rs. 96.82; Dividend: 70.00 % ; P/E: 17.92 times; Ind. P/E: 31.69; EV/EBITDA: 7.28.

Total Debt: 18,429.86 Cr; Enterprise Value: Rs. 40,350.65 Cr.

ADITYA BIRLA NUVO LIMITED: The Company was incorporated in 1956 and was earlier known as Indian Rayon Corporation Limited and changed its name to Indian Rayon and Industries Ltd in 1987. The company in the year 2005 again changed its name to Aditya Birla Nuvo Ltd. Aditya Birla Nuvo Limited is a large diversified conglomerate, which engages into apparel, viscose filament yarn, carbon black, branded garments, textiles, agri business activities, life insurance business, IT solutions & telecom business. Its Apparel business consists of Madura Fashion & Lifestyle Brands Division; its brands are Louis Philippe, Van Heusen, Allen Solly, Peter England, Espirit, People, The Collective- A international retailing brand, Peter England Menswear Brands Division, Peter England Fashions & Retail, Madura Garments Lifestyle Retail Co. Ltd., and Madura Garments Exports Ltd. Its Textiles business consists of Jaya Shree Textiles. Its Agri Business manufactures and markets urea, agricultural seeds and agrochemicals under the brand name of Indo Gulf Fertilisers, Birla Shaktiman Urea Gold, Birla Shaktiman Urea KrishiDev neem coated, traded fertilizers, Birla Shaktiman seeds - mainly paddy and wheat, and Birla Shaktiman pesticides. Its Insulators business consists of Aditya Birla Insulators. Its Viscose Filament Yarn (VFY) unit, consist of Indian Rayon and Ray One, producer of viscose filament yarn in India. Company’s Carbon Black business consists of Hi-Tech Carbon. Company’s IT services business consists of Aditya Birla Minacs IT Services Ltd., which offers clients domain-centred solutions for the financial supply chain, enterprise solutions and business assurance. Its Life Insurance business consists of Birla Sun Life Insurance Company Limited (BSLI), which offers insurance-related wealth accumulation products and services for individuals, groups and NRIs and is a 74:26 joint venture between ABNUVO & Sun Life Financial, Canada. ABNUVO’s Asset Management consists of Birla Sun Life Asset Management Company Limited (BSLAMC), and is a 50:50 joint venture between the ABNUVO and Sun Life Financial Services of Canada, which provides ethical, innovative, research and analysis based investments and wealth management services. & also operates as the investment manager of Birla Sun Life Mutual Fund. ABNUVO also has NBFC named Aditya Birla Finance Ltd- a 100% subsidiary of ABNUVO. Company also includes Other Financial Services namely ADITYA BIRLA MONEY which provides money management & brokerage services to domestic & international clients, Aditya Birla Capital Advisory Private Ltd which is into Private Equity, Aditya Birla Money Mart Limited which is into Wealth Management, Aditya  Birla Insurance Brokers Limited which is into General Insurance Advisory. ABNUVO is the major shareholder with 23.29 % in Telecom company - Idea Cellular Limited (IDEA), which is a major GSM mobile service operator in India. ADITYA BIRLA NUVO is locally compared with Bajaj Finserv Ltd, Piramal Enterprises and Globally compared with Berkshire Hathaway of USA, Agricultural Bank of China of China, Royal Dutch Shell of USA, HSBC Holdings of Hong Kong, Exxon Mobile Corporation of USA, General Electric Company of USA, JPMorgan Chase & Co of USA, China Construction Bank of China, Industrial & Commercial Bank of China of China, MNRB Holdings Berhad of Malaysia, Great Eastern Holdings Ltd of Singapore, Lifenet Insurance Company of Japan, PetroChina Company Ltd of China.

Investment Rationale:

Aditya Birla Nuvo is a US$4 billion conglomerate operating in the services and manufacturing sectors, where it commands a leadership position. Its service sector businesses include Financial Services - Life Insurance, Asset Management, NBFC, Private Equity, Broking, Wealth Management and general insurance advisory, Fashion & Lifestyle - Branded apparels & Textiles and Telecom. Its manufacturing businesses comprise the Agri, Rayon and Insulators Businesses. Aditya Birla Nuvo is part of the Aditya Birla Group, a US$40 billion Indian multinational. The Group operates in 36 countries across the globe and is anchored by an extraordinary force of about 120,000 employees belonging to 42 nationalities and derives more than 50 per cent of its revenue from its overseas operations. The company sells two branded apparels every second from its Fashion & Lifestyle Business & is one of the largest branded apparel players in India. Louis Philippe, Allen Solly and Van Heusen are the prime and amongst famous brands & continue to be the best selling brands in India. It opened one store per day & now had expanded its retail presence to 1,750 exclusive brand outlets-stores, spanning nationwide across 4.3 million square feet. Companies has its insurance business and the Indian Life insurance industry currently comprises 23 life insurers and one public sector life insurer – LIC. The top 7 out of 23 private players contributed to 74 % of the private sector’s total new business premium in 2013-14. In 2013-14, the industry’s new business premium was up by 3 % to Rs. 59,041 Crore. LIC grew by 8 % while private players de-grew by 5 %. Consequently, the share of private players in the total pie declined from 40 % to 37 %. In terms of Individual Life new business, private life insurers as well as LIC de-grew by 3 % (Source: IRDA). Given the macro-economic environment and product transition to meet regulatory guidelines, sales growth across the industry was impacted. Following major regulatory changes in 2009, there has been a perceptible slowdown in the industry. However, this has given an opportunity to existing insurance players to review their operating models to drive towards higher efficiencies and focus on more balanced growth objectives. ABNUVO has its Retail Segment, and operates in the organised retailing market; clothing and fashion retailing. These are the largest and the most penetrated segment. The organised apparel market is growing at a faster pace than the overall apparel retail market driven by multiple factors including significant growth in discretionary income and changing lifestyles. Easy availability of credit and use of ‘Plastic Money’ have contributed to a strong and growing consumer culture in India. Expansion in the size of the upper middle class and higher advertisement outlays have led to high brand consciousness- awareness and encouraged more spending on luxury products. Within the organized apparel market, men’s category is the largest segment with more than 50 % share. Menswear will continue to dominate the market in the years to come, however, the women’s wear and kids wear are expected to grow faster and enhance their share in the overall expanding pie. In fiscal 2013-14, persistently high inflation coupled with a slowdown in the economy had a bearing on the clothing and fashion retailing segment too due to subdued consumer discretionary spending, which is now changing into positive and will be good for retail arm of ABNUVO. The Company has its Telecom business and the mobile telecommunications industry in India is divided into 22 Service Areas – 3 metro Service Areas, and 19 other Service Areas. As of March 31, 2014, India had a total reported subscriber base of 904.5 million and a VLR (active) subscriber base of 790.9 million. As of March 31, 2014, mobile Tele-density was at 72.9 % based on reported subscriber and 63.8 % based on VLR subscribers. Indian Mobile Subscriber stats as on December 2014 were 94.4 Cr Total with 83.3 Cr Active subscribers, 14.3 Cr MNP Request and Broadband subscribers of 8.57 Cr. In fiscal 2013-14, the gross revenue of the Indian wireless sector grew year-on-year by 10% to Rs. 1,65,100 Cr (US$ 28 billion). The top three cellular operators in India - Bharti Airtel, Vodafone and Idea Cellular, garnered 70 % revenue market share up from 68 % a year ago. The competitive intensity in the Telecomm industry has decreased since the quashing of the licenses and the associated spectrum by the Supreme Court of India in February 2012. The Small operators are forced to exit or reduce their presence in India. The number of licensees has therefore decreased to 6-10 mobile operators per Service Area. In addition, increasing losses have forced operators to start rationalizing tariffs to protect their investments. As a result, realizations have started to improve. And Idea the Telecom arm of ABNUVO has good footing in this sector with good sales promotion and better tariff to offer. This is surely a plus point for ABNUVO. The company’s Financial Services is Gaining its market share in the Life Insurance business through good quality sales, driven by an efficient distribution network with acceptable expense levels, and with Growing profitable assets while maintaining fund performance in the Asset Management business. The company is expanding its book size in the NBFC business, while keeping risk under control. Company has managed to capture the growing Housing Finance business and has also forayed into the Health Insurance business; this will drive the profitable growth in other businesses. The Company has been successful in Capitalising on Brand !DEA, which has strong cash flows and expanding spectrum profile & infrastructure in the Telecom business will help further to capture opportunities in the voice & the emerging wireless broadband business segments. Leveraging brand leadership of Company’s Fashion & Lifestyle by scaling up retail space & enriching product portfolio in Branded Apparels business will be added advantage, It has Expanded its linen yarn capacity to tap sector growth & is now focusing on high margin linen fabric retail in Textiles. Capturing such growth sectors gives immense opportunities and will improve margins in the Manufacturing businesses.

Outlook and Valuation:

Aditya Birla Nuvo Ltd (ABNL), a US$ 4 billion diversified conglomerate by revenue size and is a part of Aditya Birla Group, a US$ 40 billion Indian business house. Aditya Birla Nuvo Limited has an interesting mix of value-creating businesses that represent domestic consumption sector like telecom, fashion and garments, import substitution like fertiliser, viscose fibre yarn and financial services like insurance, NBFC lending, asset management among several others. These business lines give ABNUVO a unique competitive advantage in allocating funds across varied businesses and lower cost of capital. It can finance longer gestation businesses and withstand short-term earnings volatility while keeping in sight long-term goals and value creation. ABNUVO was predominantly a manufacturing house till a few years ago but now it’s a huge diversified conglomerate. It has embarked on a programme to build a new economy services sector business backed by cash flows from the manufacturing business and captured that transition successfully. During FY05-13, the share of manufacturing in revenue dropped from 67 % to 28 %. Services and consumption revenues now constitute the bigger part and reflect future opportunities. The company has painstakingly gained leadership position across business lines and has widened the moat on the back of disciplined execution. These key milestones achieved by the company have defined the entrepreneurial spirit of the company and laid the foundation for robust growth in future. ABNUVO has successfully built a pan-India telecommunications powerhouse, “Idea Cellular” and this telecom business has crossed the regulatory minefield and increased its market share to the current 16 % and is considered amongst top 3 in India, while competition intensity has reduced considerably. The company is the sole investment vehicle of the Aditya Birla group in telecom sector and has 23.30 % investment in Idea Cellular. The sector was marked with high capital investments of around Rs. 9,000 crore by ABNUVO and it gave poor returns. However, with the reduction in competitive intensity the return on capital employed (RoCE) has improved for the company and it’s now one of the successful feathers in the wings of the company. The ABNUVO has built a high-growth fashion and branded garment business, Madura Lifestyle that generates RoCE in excess of 20 % a year and is leader in its sector. This business was a loss-making acquisition for a long time, but with its unique operating structure and stable earnings of the group has led to business creation over the last eight years, while most competitors have floundered in the downturn. Recently, Allen Solly, the premium Readymade brand from Madura Garments citied to set a target of a turnover of Rs. 1,000 Cr in FY16 and expects to touch Rs. 800 Cr in sales this fiscal and Rs. 1000 Cr in the next. The Allen Solly brand has been growing at 34 % CAGR for the last three years and expects to maintain that. Last fiscal its revenue stood at Rs. 600 Cr. Mens wear enjoys a lion's share of the Allen Solly revenue with womens apparel constitutiong only 18 % & childrens wear 7 % & exports around 5 % mainly to SAARC countries & West Asia. Allen Solly brand also has footwear, handbags and accessories which contributes around 5 % of the sales. Allen Solly has a 10 year licencing agreement for Wimbledon merchandise through Solly to sell mens wear. Also, ABNUVO has built insurance business with 8 % of market share and in asset management, it has 9.4 % market share, this business is a JV and is among the top 5 players in terms of market share and profitability. It is also one of the prime candidates among 26 applicants for new banking licences to be issued by the Reserve Bank. ABNUVO also has presence in retail broking, wealth management, distribution of financial products and general insurance advisory and has forayed into private equity as well. While ABNUVO transformed its portfolio and grew new businesses, its market cap has grown only marginally. Shareholders have for long complained about lack of focus, low RoE-RoCE generated by the operating businesses and investment structures with long payoffs. But these all is changing & Companies efforts are being paid off. During 2007-2013, ABNUVO seeded new businesses. Its key businesses are now attaining critical mass within their industry segments. Now it is positioned to deploy sizeable capital and realise attractive returns. The company has switched from investment mode to harvest mode now, and has a three-pronged strategy to achieve this. The first part is to consolidate segment leadership with bolt-on acquisitions. In 2012, ABNUVO acquired the retail format business of Pantaloon for Rs 1,200 crore, employing its management bandwidth to harness synergy and turn around this business. This creates a combined fashion enterprise of about Rs 4,000 crore (sales) with revenue growing in excess of 15 % a year, synergies of scale and a tight control over working capital. Given that most competitors operate in niches or lack the financial capability to drive consolidation in the industry, the company is well placed to lead the rapid transition from unorganised to organised markets. It is also eagerly waiting for policy guidelines for the fertiliser business and is geared up to make significant investments in this business, which has a good RoCE. Second, ABNUVO is realigning its business portfolio. It has divested the low-margin carbon black business and redeployed capital in the NBFC lending business, which is generating higher RoCE over an economic cycle. It has also marked out the Rs. 2,400-crore IT-ITES business, which generates a RoCE of less than 9 %, for divestment. This will release capital of Rs. 2,000 crore that can be deployed in other businesses. The third part of the strategy relates to “Value Unlocking”. ABNUVO has considerable experience in financial services through its activities in NBFC lending, life insurance and asset management. With its impeccable track record, the group was always a strong contender for a banking licence. If that happens, the financial services businesses will be spun off into a separate structure, thereby unlocking the value of the investments and reducing the holding company discount attributed to the listed company. ABNUVO’s Sales, profit after tax and book value have grown at a CAGR 30 % over the past eight years. The company has achieved this with minimal dilution of equity. It generated cumulative operating cash flow of over Rs. 15,000 crore, which has been deployed in various growth businesses as well as to reduce debt. Overall, the total debt level is close to 1.65X, much less if we remove the leverage by NBFC. Most of the new businesses have attained a reasonable size and market leadership in their respective industry. There could be a significant improvement in consolidated RoCE from the current 11 % for the next three years. With Superior RoCE in various businesses will benefit the company and could trigger re-rating for the company. At the current market price of Rs. 1735.70, the stock is trading at a PE of 18.37 x FY15E and 16.83 x FY15E respectively. It can post EPS of Rs. 94.46 for FY15E & of Rs. 103.08 for FY16E. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALS	FY13A	FY14A	FY15E	FY16E
SALES (₹ Crs)	25,490.20	25,893.39	27,964.86	29,922.40
NET PROFIT (₹ Cr)	1,058.89	1,142.88	1,228.79	1,340.90
EPS (₹)	88.09	87.86	94.46	103.08
PE (x)	17.73	17.78	16.54	15.15
P/BV (x)	2.05	1.82	1.63	1.46
EV/EBITDA (x)	11.05	10.84	10.31	9.87
ROE (%)	12.92	10.92	10.39	10.10
ROCE (%)	21.54	22.10	22.14	22.12

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