Aditya Birla Nuvo

Aditya Birla Nuvo 
Cluster: Apple Green
Recommendation: Buy 
Price target: Rs1,031
Current market price: Rs836

The Idea stake gets bigger
The Aditya Birla group (ABG) has agreed to acquire the Tata group's 48.1% stake in Idea Cellular—through Aditya Birla Nuvo (ABN) and Birla TMT Holdings—for a total consideration of Rs4,406 crore. ABG would acquire 108.9 crore shares of Idea Cellular from the Tata group at Rs40.5 per share, thereby matching the offer of Maxis Communication. The Malaysian company had offered to pick up the Tata stake at Rs40.5 per share. After the acquisition, ABG will own a 98.3% stake in Idea Cellular. This deal pegs the total value or the enterprise value (EV) of Idea Cellular at Rs13,461 crore (including a debt of Rs4,309 crore). The same translates into an EV/subscriber (at the current subscriber base of 0.7 crore as in February 2006) of US$427. The valuation is in line with the recent Hutch-Max India deal concluded at US$429 but is marginally lower than the Aircel-Maxis Communication deal signed at US$485. 

Either by itself and/or through its subsidiaries ABN will acquire 33.9 crore shares representing 15% of the equity capital of Idea Cellular for Rs1,373 crore. After this transaction, the equity holding of ABN and its subsidiaries in Idea Cellular will increase from 20.7% to 35.7%. The transaction will be strictly in agreement with the growth strategy of ABN that seeks to invest in high-growth businesses like those of telecom, information technology (IT) and garments.

Plethico Pharmaceuticals IPO

Plethico Pharmaceuticals (PPL) manufactures branded formulations for domestic and non-regulated export markets. The company is promoted by Shashikant Patel, who is the chairman and managing director; and his two children, Chirag Patel, who is a whole-time director and CEO, and Ms Guaravi Parikh, executive director). After the issue, promoters' stake will stand around 86%.

PPL has two manufacturing units at Manglia and Kalaria in Indore, Madhya Pradesh, and a unit in Kandla Special Economic Zone. The plants at Indore produce tablets, lozenges, capsules, syrup, powders, nutraceuticals and herbal formulations. The Manglia plant manufactures effervescent tablets and rifampcin. The products of PPL fall under anti-diabetic, anti-rheumatic, hepato-protective, anti-lipidemic and rejuvenating agents.

PPL is shortly going to launch sugar free lozenges. The company has developed herbal vegetarian capsules for the first time in India for exports to Russia.

Currently, PPL operates three SBUs in the over the counter (OTC) segment: neutriscience (sports nutrition and supplements), confectionary and OTC drugs.

The current issue is purposed to finance the upgradation of the Kalria plant for UK ??(MHRA) compliance, which will absorb around Rs 25.70 crore, and set up a plant in Jammu and Kashmir (J&K), which is WHO GMP compliant, with an investment of Rs 30.90 crore. PPL plans to start organic farming in J&K to support its herbal products. The company will keep Rs 28 crore for any acquisition opportunities in the OTC, domestic herbal and nutraceuticals space in India. Rest of the amount will be spent on the setting up an R&D center, a corporate office in Mumbai, and working capital requirement.

The upgradation of the Kalaria plant (to be completed by January 2007) will help PPL to foray into the UK generic and herbal markets, and give a thrust in the existing markets in CIS, Russia and Africa. This plant will produce only cephalosporin products. The production from the J&K plant (to be completed by July 2007) will be earmarked for domestic market.

Strengths

• Wide range of products numbering around 400 across 40 therapeutic areas de-risks the business.
• Global presence in around 45 countries across the globe. To strengthen the marketing and distribution network, PPL is in advanced stage of acquiring the controlling stake in the Rezlov group, which has strong presence in CIS, Russia and Cambodia.
• PPL earns substantial revenue (around 68%) from exports of which around 70% comes from herbal products.

Weaknesses

• PPL does not have presence in regulated markets like Europe and the US.
• Despite a host of products, PPL has been able to create identity only in few brands like Travesil (a cough and cold herbal medicine, which gives Rs 35 crore of revenue), Coach's formula (a protein rich nutritional preparations for atheletes), and Bytes candy. .
• Half of the sales are locked up in debtors. Debtors of Rs 43.6 crore (around 20% of sales) are due for more than six months. Exports to CIS and African countries involve long credit periods and attendant risks.

Financials

PPL's performance for the latest year ended September 2005 is not comparable with prior periods due to the change in accounting period and the sale of the ethical division in the previous year.

In the first quarter of fiscal 2006 (ended December 2005), PPL's revenue stood at Rs 63.09 crore. On the back of 33.6% operating profit margin, the company earned 21.19-crore operating profit. The profit before tax (PBT) in the quarter stood at Rs 20.90 crore at a PBT margin of 33%. The profit after tax (PAT) at Rs 19.91 crore gave a net margin of 31.6%. These margins are high.

Valuation

PPL's FY 2005 (ended September 2005) EPS stands at Rs 16.5 at the upper price band and Rs 16.4 at the lower price band. PE at price band of Rs 280 and 300 stands at 17.1 and 18.3, respectively, which is in line with industry composite P/E.