BHARTI INFRATEL LTD : BEST STOCK TO OWN !!!

Scrip Code: 534816 / INFRATEL

CMP:  Rs. 390.85;   Market Cap: Rs. 74,131.23 Cr; 52 Week High/Low: Rs. 499.65 / Rs. 341.35.

Total Shares: 189,66,67,069 shares; Promoters : 136,00,00,000 shares – 71.70 %; Total Public holding : 53,66,67,069 shares – 28.29 %; Book Value: Rs. 94.73; Face Value: Rs. 10.00; EPS: Rs. 8.80; Dividend: 110.00 %; P/E: 44.41 times; Ind. P/E: 26.32; EV/EBITDA: 19.88.

Total Debt: NIL; Enterprise Value: Rs. 69,639.41 Cr.

BHARTI INFRATEL LIMITED: The Company was incorporated on November 30, 2006, Bharti Infratel Limited is a provider of telecom tower and related infrastructure. Bharti Infratel is one of the world's largest telecom tower infrastructure providers which deploys, owns and manages telecom towers and communication structures for all wireless operators. The business of Bharti Infratel and Indus is to acquire, build, own and operate telecom tower and related infrastructure. The company come with an IPO in December 14, 2012 issuing 18,89,00,000 equity shares of face value of Rs. 10 each at an issue price of Rs. 220 raising Rs. 4,155.80 cr. The company got listed on December 28, 2012 at Rs. 200 which was also its days high and making a low of Rs. 188.70. The object of the issue was raise money for installation of 4,813 new towers, to arrange funds for up gradation and replacement on the existing towers, to facilitate green initiatives at tower sites, and for the other general corporate purposes and to get the benefits of listing of the equity shares on the stock exchanges. The company has not declared splits in face value of its shares nor have given bonus shares till now. Bharti Infratel and Indus currently provides access to their towers primarily to wireless telecommunications service providers. Bharti Infratel's and Indus's three largest customers are Bharti Airtel (together with Bharti Hexacom), Vodafone India and Idea Cellular. They are the three leading wireless telecommunications service providers in India by wireless revenue. In India, Infratel with Indus has over 88,000+ towers, across 18 states, and 22 Telecom circles, and still growing. Bharti Infratel also has a 42 % stake in Indus Towers which was created as a Joint Venture in 2007 between Bharti Infratel (42 %),  Ortus Infratel Holding (Vodafone 42 %) and IDEA Aditya Birla Telecom (16 %) to hive off the Towers business in 15 telecom circles. BHARTI INFRATEL LTD is locally compared with GTL Infrastructure Ltd, Sujana Towers Ltd, Kalpataru Power Transmission Ltd, BS Limited, KEC International Ltd, Technofab Engineering Ltd, Jyoti Structures Ltd, Premier Energy and Infrastructure Ltd, Shriram EPC Ltd, Om Metal Infraprojects Ltd and globally compared with American Tower of USA, Crown Castle of USA, SBA Communication of USA, United States Cellular Co. of USA, Vertical Bridge of USA, Insite Towers of USA, BNSF Railroad of USA, Time Warner of USA, Phoenix Tower International of USA, Tower Ventures of USA, AT&T Towers of USA.

Investment Rationale:

Bharti Infratel Limited is an India-based company engaged in providing tower and related infrastructure sharing services. The Company has operations in around 22 telecommunication circles. Bharti Infratel has been the industry pioneer in adopting green energy initiatives for its operations. The business of Bharti Infratel and Indus is to acquire, build, own operate tower and related infrastructure. Bharti Infratel received the prestigious Golden Peacock Awards in 2015 for their unique initiatives and significant contribution towards corporate social responsibility. This award recognises and felicitates institutions, corporates and government enterprises for their dedication and high level of quality at work. Bharti Infratel and Indus currently provide access to their towers primarily to wireless telecommunications service providers on a shared basis, under long term contracts with Bharti Airtel, Vodafone India and Idea Cellular, which are the three leading Wireless telecommunications service provider in India by wireless revenue. As on September Dec 31, 2015, Bharti Infratel owned and operated 37,801 towers with 78,949 co-locations in 11 telecommunications Circles while Indus operated 1,17,579 towers with 2,61,159 co-locations in 15 telecommunications Circles. The Company's towers come in two varieties, which include ground-based towers (GBT) and roof-top (RTT) towers. The Indian telecommunications industry is one of the most competitive globally. The focus of Indian operators in the last ten years or so has been to develop an affordable mass market telecommunications service model which allows for service availability across India’s urban and rural areas at affordable prices. A strong focus on optimization of operational expenses through the outsourcing of non-core areas, process innovation, cost to serve alignment and strategic partnerships has also resulted in steady growth of the Telecom Tower Industry in India. Today, all operators prefer to lease towers from tower companies rather than build them for captive use. Infrastructure sharing is effective in optimizing the utilization of available resources and helps to bring down the cost of providing telecommunications services. With the reduction in overall tariffs and restrictions placed by various local regulatory bodies on the installation of telecom towers, infrastructure sharing amongst service providers has become the norm rather than the exception in the Indian telecommunications industry. Tower companies provide the entire range of tower infrastructure that is required by wireless telecommunications service providers to offer mobile telephony services to their subscribers. Tower infrastructure refers to equipment’s such as towers, shelters, power regulation equipment, battery banks, diesel generator sets, air conditioners, fire extinguishers and a security cabin, required at a site where such towers are installed. There are generally two types of towers – the Ground Based Towers (GBTs) and Roof Top Towers (RTTs). India will emerge as a leading player in the virtual world by having 70 Cr internet users from the 4. 7 billion global users, by 2025. With the government’s favourable regulation policies and 4G services hitting the market, rapid growth is expected in the Indian telecommunication sector in the next few years. Also, with developments in this sector, services such as security and surveillance, remote monitoring of ATM machines, home automation, traffic management, retail, logistics and grid energy could eventually facilitate optimisation of resources. Mobile Data is going to be the key pillar of growth for the Indian telecom industry. In addition, the sector is also seeing increased focus on quality of service and a possible utilization of unused spectrum. These trends are positive for tower companies. The Telecom towers have changed the skylines of India’s cities—or even its towns and villages dramatically over the past 10 years, but one of the most striking differences has been the appearance of telecom towers which are 30-70 meter-high structures that mostly crown the tops of the tallest buildings. India’s telecom boom has been well charted. Some 18 years after the mobile phone first appeared on the Indian consumer stage, there are more than 90 Cr mobile phone users in a country of 1.2 billion, which is more numbers than have access to a toilet, according to a statistic often touted by development agencies, and three times the entire population of the US. And the growth of the sector in the last decade has been explosive—in 2002, the number was just 6.68 million. India’s telecom sector is now the second largest in the world, and the fastest growing. Providing network coverage to these hundreds of millions of users are around 500,000 telecom towers, covering more than 90 % of the country’s land area, and unnoticed for the most part by the people who rely on them. Most are made of iron girders painted red and white, with up to six long, bar-shaped antenna pointing skywards, linked with wires to a small shed at the base. A tower connects two callers to each other via switching centres or telephone exchanges, providing urban and rural India with access to mobile communication on a scale which is just second to China. Not only do the towers provide a crucial service, they represent an annual Rs. 1.36 trillion revenue industry, for India’s economy, mobile phones mean money: for every 10 % of the population using basic services (voice and SMS) in the country, national gross domestic product rises by 0.5 %, according to a department of telecommunications (DoT) report, and for Internet and other non-voice communications (data), the same penetration adds 1 %. It’s not surprising then that the telecom tower sector has become an industry in its own right. The government granted towers an “infrastructure” status, putting them on the same footing as roads, ports, hospitals and even electricity generation. This brought encouragement and investment in this sector, which was crucial for the growth of the country. These towers were proving expensive at Rs. 20 lakhs to 40 lakh each and so the idea of tower sharing, encouraged by the government, became popular. Today, a single tower is often shared by multiple tele-coms. The capital deployed is much more efficient and it offers considerable savings in operational expenditure. It’s a win-win for the telcos and the towercos. A telco renting 75 % of its sites from tower companies can reduce its first-year costs by 60 %. 

Building up towers is complex thing. There are two types of tower requirements: green-field i.e. for expanding into a new area and brownfield which is to fill a gap in an existing network. Once the choice has been made, it’s up to the network provider to decide on the location. The telcos, along with their network partners, vendors and towerco, come up with a “network design” for a particular region, based on anything from the amount and quality of spectrum available, to the amount of concrete and height of buildings at the location. The design of a tower must take into account the wind velocity in an area, its proximity to an airport runway and even the curvature of the earth. Each tower must have line of sight with its neighbour, with all of them being arranged in a hexagonal or octagonal pattern. The shorter the tower, the more towers or repeaters are needed to amplify the signal—a particular problem in the Indian context, where operators work with one-tenth of the spectrum that’s available in developed markets and need to serve a much larger user base. Telecom towers are a lot like real estate—everything depends on the location. Land must be acquired at the exact coordinates where the tower is needed. After the telco has decided on a location, the coordinates are given to the towerco, which checks to see if there are any other towers in the area that can be used. To cut costs, towercos rent the land for a tower on a long-term lease. That brings the challenge of dealing with landlords, which can be something of an ordeal. If there are no unforeseen delays, a ground base station takes around 60 days to build and roof top takes around 45 days to build the tower. The biggest challenge, however, is not in the building of a telecom tower, but in its maintenance: the rising cost of fuel and the need to be environmentally responsible, as well as reassuring the public that its structures are not health hazards, is proving a sticking point for the towercos. Trai had directed all towercos to reduce their dependence on diesel and cut carbon emissions by running at least half of all rural towers and 20 % of urban towers on hybrid power by 2015. The problem for the towercos is that due to an unreliable grid, and the remote locations of some towers, more than 60 % of the towers currently depend solely on diesel for power generation. The rise in diesel prices may increase the troubles. The Tower and Infrastructure Providers Association is working on a model where towercos partner with renewable energy service providers to make a viable business case for both, the idea is that the towercos buy energy from a renewable energy provider in rural areas. Few years back Bharti Infratel and Indus announced to replace their diesel generators with batteries. Bharti Infratel already generates as much as 5 million units of solar power every year. While continual growth of the tower sector has led to much scrutiny, their ubiquity and importance to the economy has forced a significant amount of innovation and research that can be tapped by other industries. There is tremendous demand for data in India and the telecom towers can become the focal point for delivery of broadband, at least outside the urban markets, these towers can be connected to the ATMs and even computer kiosks. As with the tower, you get both communication capabilities and power, which are difficult to find in rural areas.  

Outlook and Valuation: 

BHARTI INFRATEL is the largest telecom tower provider company and enjoys a good position in the industry. Recently, Bharti Infratel will be included in Nifty 50 from April 1, 2016, this would bring more interest of institutional and funds managers into the stock. Telecom towers are the integral part of the telecom network infrastructure. In fact they are the most expensive to build and the valuations are heavy. This business has outgrown itself that most of the companies have hived off the tower business as its own entity. Tower business is making explosive growth and exponential investments are involved. It requires a lot of investment to survive and the smaller companies are finding it difficult. There has been massive consolidation in the telecom space with players such as Videocon, Reliance Communications, Systema Shyam, Aircel etc. either scaling down its operations or contemplating merging with each other, like American Tower Corp acquird Xcel Telecom for Rs. 700 Crs, Quippo Telecom acquired Spice Telecom’s tower business and Tata Teleservices WITIL is merged into it. Bharti Infratel did face loss in tenancies owing to such a phenomenon, which also led to 610 exits in the quarter on a consolidated basis. However, the management reiterated that the loss in tenancies is only temporary and weeding out inefficient players leads to higher room available for efficient telcos. Consolidation trends are also visible in the tower space with ATC emerging as a competition to Infratel post the acquisition of Viom. Because of the intense competition each tower needs more than 2 tenants to stay profitable. The current rates are a bit low and hence the sharing and consolidation. The independent mobile tower companies will gain a lot as it is difficult for new companies to build their towers. If the established player too shares their towers then the new telecom players can roll out their networks quickly and the tower companies can increase their revenues. There are 13 major tower companies in India – Indus towers has approx. 80,000 towers; Reliance Infratel has 31,000 towers; Quippo Telecom Infrastructure has 23,000 towers; GTL has 9,000 towers, Essar Telecom has 6,000 towers, American Tower Corp has 4,000 towers, Tower Vision has 3,000 towers, Aster Infrastructure has 1,000 towers, India Telecom Infra Ltd has 1,000 towers, KEC Internatioal has 400 towers, Independent Mobile Infrastructure has 400 towers and Bharti Infratel has 20,000 towers. The Telecom Regulatory Authority of India (TRAI), has proposed levying penalties on companies whose calls are getting dropped. Call traffic increases with dropping call rates but the spectrum is limited and companies need to put more and more sites and finding sites is a difficulty. This difficulty in getting sites is also due to the myth and fears about radiation and also due to some prime location where there is government property. Hence in order to avoid call drops tower sharing becomes more important and hence tenancy for these tower companies increases. 

Bharti Infratel has tenancy around 3,000 and as more and more data networks get rolled out, acceleration would happen. Also with the launch of Rel Jio and with the 4G roll out would mean more tenancy for tower companies and more data volumes. Airtel and Idea are expected to post data volume growth of 55 % CAGR in FY16E-18E to 695 and 415 billion MB, respectively. Hence, data revenues may then form about 23 % to 25 % of total revenues from 15 % to 17 % currently. Bharti Infratel Ltd with Airtel, Idea and Vodafone as anchor tenants, who together control about 70 % revenue market share, is certain to benefit from increasing tenancies as data volumes increase. With the call drops issue coming into limelight and the government’s stance to make telcos liable for the breach in quality standards, this would increase the demand for installation of more cell sites, thus benefitting Bharti Infratel Ltd. In addition, installation of a single RAN would also augur well for the company as equipment’s in such a case are smaller, thus freeing up more room for more tenancies. Bharti Infatel Ltd has an annuity led business with a remaining estimated contract life of 5.9 years, which lends certainty of future cash flows to the tune of more than Rs. 47,500 Cr. The company delivered 2.8 % dividend yield by declaring a dividend of Rs. 11 in FY15. Bharti Infratel is expected to pay dividends to the tune of Rs. 11.0 and Rs. 12.1 per share in FY16E and FY17E, respectively. Bharti Infratel is also awaiting regulatory clarity about buyback norms, which could help in optimising the capital structure and, hence, improve return ratios. On financial side Bharti Infratel reported its Q3FY16 numbers with revenues at Rs. 3,093 crore, up 4.9 % YoY. Revenues from rentals grew 9.0 % YoY to Rs. 1,966.7 crore as consolidated tenancies grew from 2.08 to 2.17 over the same period. Energy revenues declined 2.0 % YoY to Rs. 1,126.3 crore as input prices declined. Bharti Infratel’s EBITDA came in atRs. 1,343.0 crore, up 5.5 % YoY. EBITDA margins came in at 43.4 %, up 25 bps YoY, as expenses towards rent & other expenses were up 12.4 % YoY and 37.5 % YoY, respectively. Energy margins remained at 4.8 % as it continued to pass on the energy benefits. PAT came in at Rs. 565.4 crore, due to higher other income, which came in at Rs. 132.9 crore. With robust growth in data volumes, there are an increasingly higher number of tenants on the company’s network. The average tenancy at the Consolidated level has grown from 1.90 x in FY12 to 2.06 x by FY15 leading to 32 % CAGR in FY12-15 in sharing revenues from Rs. 3,099.9 crore in FY12 to Rs. 7,126.1 crore in FY15. Going ahead, it is expected that the average sharing factor at the consolidated level to reach 2.28 x. Bharti Infratel Ltd is a play on the operating benefits that would flow in with increasing tenancies. As a new tenant comes on board, rentals multiply whereas costs do not have a linear increase. Loading revenues are also highly margin accretive and would flow in directly into margins. As tenancies rose from 1.9x to 2.13x in the last few years, margins for the consolidated entity have risen to 43 % in the current quarter from 37 % in FY13. However, as there is currently higher tower requirement in cities, which command a higher rental expense, the growth in EBITDA margins would be slower than expected earlier. With ballooning data growth and tremendous opportunity, going ahead, considering the kind of spectrum purchased by telcos and stable annuity based business model, Bharti Infratel Ltd looks attractive. At the current market price of Rs. 390.85, the stock is trading at a PE of 32.03 x FY16E and 27.14 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 12.20 in FY16E and Rs. 14.40 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

SOTP Valuation :- 

Business Subsidiary	Per Share (₹ Rs)
Enterprise Value of Standalone business	262.13
Enterprise Value of Indus Towers Rs. 678.91 per share
BIL holding (42%) in IT Rs. 285.15 per share        (Less) Holding discount (15%)	242.37
Total Enterprise value	504.50
Less: Net Debt (Rs. Cr)	4.22
TOTAL Value per Share (Rs.)	500. 28

KEY FINANCIALS	FY15	FY16E	FY17E	FY18E
SALES (₹ Crs)	11,668.30	12,322.50	13,553.30	14,950.10
NET PROFIT (₹ Cr)	1,992.40	2,296.00	2,727.40	3,122.50
EPS (₹)	10.50	12.20	14.40	16.50
PE (x)	35.00	30.40	25.60	22.30
P/BV (x)	4.90	5.10	5.40	5.50
EV/EBITDA (x)	14.10	13.20	11.50	10.10
ROE (%)	13.40	16.50	20.50	24.40
ROCE (%)	18.30	22.40	27.50	32.10

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RETURN ON CAPITAL

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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