After posting losses for six consecutive quarters, Aditya Birla Nuvo Ltd (ABNL), a part of the $29-billion conglomerate Aditya Birla Group, is seeing a reversal in its business performance. While some of its business segments are seeing a revival in demand, in others, the company has reduced losses.
ABNL had posted a consolidated net profit of Rs. 1.44 crore in the second quarter ended September 2009, against a net loss of Rs. 104.6 crore in the corresponding quarter last year. The company could better its balance sheet due to the strong growth in earnings of its rayon yarn, carbon black and BPO businesses, which took a hit in revenues during the slowdown.
Sushil Agarwal, the new CFO of ABNL, took over from Adesh Gupta (now CFO of Grasim) in May 2009, at a time when the economic scenario in general was going through tough times and especially ABNL had reported a dismal Q4 FY09 performance, where its loss had widened to Rs. 141 crore y-o-y.
Soon after Agarwal’s appointment, when FE asked him about his strategy to turn around ABNL, Agarwal replied, “There is no denial of the fact that we are in challenging times. But we are also witnessing signs of improvement in macro fundamentals and investor confidence as compared with what we saw in October -November 2008.”
Nuvo’s growth strategy that time included at increasing the share of growth businesses into consolidated revenues by deploying cash surplus from value businesses to nurture the growth businesses.
According to experts, the carbon black and branded garments business has been witnessing a turnaround with a substantial improvement in the demand in the past few months.
The company which is bullish on its telecom and financial services business saw the revenues from the telecom business remained flat at Rs. 801.9 crore on a sequential basis (a 19.3 per cent y-o-y growth).
Moreover, the net losses in its life insurance business saw a declined to Rs. 127.3 crore in Q2 FY2010 versus Rs. 200 crore in Q2 FY2009 due to lower strain of new business premium. The renewal premium increased by 43 per cent y-o-y in Q2 FY2010 while the new business premium grew only by 5 per cent y-o-y.
The company is further looking at unlocking value for ABNL and its shareholders by listing a few of its growth businesses at an appropriate time.
Nuvo which currently has about Rs. 3,700 crore of debts in its books, plans holding company for its financial services business.
Not divulging any details on this, Agarwal, during the company’s Q2 results, agreed a few PE players showing interest in the proposed holding company.
“However, there is nothing concrete as of now because we are still seeking the regulatory approvals for this,” Agarwal had told FE earlier.
The company’s financial businesses, which currently contributes to about 32 per cent to Nuvo’s total revenues, has posted 17 per cent y-o-y growth in combined net sales.
The carbon black segment reported another strong quarter with the sales volume increasing by 6.5 per cent quarter-on-quarter (q-o-q). The carbon black business witnessed a 15.2 per cent y-o-y decline in its revenues.
“The company surprised with strong performance by its rayon yarn business. The profit before interest and tax margin of the rayon yarn business improved sharply by 1,102 basis points to 24.4 per cent mainly due to higher viscose rayon filament yarn realisation and lower input cost,” a Sharekhan report said.