Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,031
Current market price: Rs714
Master of all trades
Key points
- Aditya Birla Nuvo (ABN) is a unique play on four of India's most exciting sectors: garments, insurance, telecom and information technology (IT)/IT enabled services (ITES). The Stock Idea is also a play on the strong Indian growth story, especially the strong consumer demand, the evolving outsourcing trends and the strengthening financial system.
- ABN has adopted the perfect recipe for growth: mint money from the cash-rich businesses of rayon, carbon black and fertiliser, and focus on the high-growth business of garments, telecom, insurance and IT/ITES. Consequently, the company expects the share of revenues from its high-growth businesses to rise from 53% in FY2005 to 75% in FY2008E.
- Owing to the diversified nature of its businesses, the company is valued using the sum-of-parts method. Using this method we have arrived at a fair value of Rs1,031 per share. The stock is available at a 44% discount to this fair value and we initiate a Buy on it with a 12-month price target of Rs1,031.