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Idea Cellular boosts Aditya Birla Nuvo’s March quarter earnings

LiveMint logoLiveMint 20-05-2014 Ravi Krishnan

Aditya Birla Nuvo Ltd defines its core businesses as those in which it could rank in the top 5 in the market. Thus, in the last couple of years it has sold its carbon black and information technology-enabled services (ITES), and bought Pantaloons Fashion and Retail Ltd. But a top 5 position in an industry doesn’t necessarily mean that the financials have to be good. However, the very diversified nature of the firm meant that businesses such as Idea Cellular Ltd and asset management allowed it to show a 15% increase at operating profit level.

The Pantaloons business continues to struggle. Its revenue for the March quarter grew 2% from a year ago as like-to-like store sales declined 1.6%. The division’s debt stood at `1,050 crore at the end of March compared with `931 crore a year ago; its net worth eroded by `191 crore to `579 crore.

Of course, the divestments mean that the company gets money to invest in other businesses. That has also helped keep its debt under check; the net debt-to-equity ratio at the end of March improved to 0.39 from 0.53 times a year ago. Cash flow from the sale of ITES business will further help. The company has earmarked about `110 crore of investment in Pantaloons this fiscal year. But given the consumption slowdown in the economy, it is going to be a long haul. The management said that the Pantaloons division continues to be in the investment phase and would take 18-24 months to turn around.

That is not the only business to drag down Aditya Birla Nuvo in the fourth quarter. The fertilizer business showed losses in the March quarter owing to a plant shutdown and discontinuation of trading in imported fertilizers. The rayon and insulators business did reasonably well.

Ultimately, the big push to Aditya Birla Nuvo’s operating profit came from Idea Cellular. While the insurance business showed a pick-up in premium collection in March, it showed a decline in earnings before interest and tax.

Overall, while Aditya Birla Nuvo has done reasonably well in the March quarter, the fact remains that its profits have fluctuated over the past two years, owing both to its chopping and changing and a slow economy. That perhaps explains why it continues to underperform the S&P BSE 100 index. Focus on the existing bunch of businesses and sharper increases in earnings are needed for the stock to whet investor appetite.

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