The Hindu Business Line : Aditya Birla Nuvo: Buy

Investors can consider taking fresh exposures in the Aditya Birla Nuvo stock at current price levels. The company is a solid proxy on the three high growth themes of telecom, insurance and IT/BPO.

Based on a sum-of-the-parts valuation, these three themes impound nearly 85 per cent of the overall value of Aditya Birla Nuvo, with Idea Cellular, the mobile venture of the group, cornering a sizeable chunk.

The listing of Idea Cellular, in which Aditya Birla Nuvo holds a 31.8 per cent equity stake, has imparted greater clarity to the valuations of the latter. Idea Cellular accounts for over 70 per cent of the current market value of Aditya Birla Nuvo. With 14 million subscribers and 11 per cent market share, Idea is well positioned to capitalise on a multi-year mobile expansion story.

As an original licensee in seven out of 11 circles that it operates in, it enjoys strong market presence in key circles such as Haryana, Maharashtra, Andhra Pradesh, Gujarat and Uttar Pradesh (West). This is likely to sustain its growth momentum in the coming quarters. The recent three-year contract signed with Ericsson for GSM expansion and a 10-year pact signed with IBM to transform Idea's business processes and IT infrastructure are encouraging. While it is set to roll out services in Mumbai and Bihar, it has also applied for licences in the remaining 10 circles to become a Pan-India player. The availability of spectrum for new circles, timely project execution and high debt exposure remain the principal risks relating to the mobile venture.

Birla Sun Life Insurance, in which Aditya Birla Nuvo has a 74 per cent equity stake, accounts for about 10 per cent of the market value. Though insurance is a loss-making operation, it has already started making investments in opening new branches, enhancing the agency network and introducing new products to wean away market share from the incumbent. Finally, Transworks/Minacs, the BPO venture has the scale to yield good returns in the coming years.

To sustain investments in these high growth businesses, Aditya Birla Nuvo has presence in fairly stable and mature businesses such as rayon, textiles, fertilisers, carbon black and insulators that can generate the requisite cash flows.

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