>ADITYA BIRLA NUVO LIMITED (INDIABULLS)

Telecom, Insurance drive long-term growth

Aditya Birla Nuvo Limited’s (ABNL) Q1’10 results, though adversely affected by the global slowdown, are better than the previous quarter’s and higher than our expectations. While the company registered a 3.7% yoy growth in Q1’10 consolidated net sales, we continue to believe that its growing telecom, financial services, and life insurance businesses along with the improving performances of other businesses will provide long-term value to the shareholders. Accordingly, we have upwardly revised our fair value estimate to Rs. 1,210, which is 18.8% upside from the current stock price. Thus, we reiterate our Buy rating on the stock.

Significant value from the telecom business: ABNL’s stake in Idea comprises over one-third of our fair value estimate for the stock. Owing to India’s relatively robust economic growth outlook and a lower tele-density at 36.98% (TRAI), we believe the Telecom sector has a high growth potential.
We further believe that Idea’s pan-India presence (by the end of December 2009) will help it capture this growth opportunity and drive economies of scale and operational synergies. Accordingly, we expect Idea’s net sales to grow at a CAGR of 32.4% between FY09 and FY11. Moreover, with the cash inflow from the Providence Equity Partners deal, Idea is well positioned to
fund its growth plans and participate in the 3G auction.

Financial services and insurance businesses provide potential for growth: We believe that ABNL’s financial services and insurance businesses hold immense future value potential for shareholders. During Q1’10, revenue from financial services segment increased by 33% yoy and the reported EBIT margin stood at 19.9%. While private life insurers new business premium fell
~18% yoy in Q1’10, the premium of Birla Sun Life Insurance fell only 12.1%.

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