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Birla Global: Future driver?

Dec 12, 2000

Birla Global Finance (BGF), an Aditya Birla Group company, has reported an excellent performance for the year ended March 2000. The companys bottomline was fueled by a surge in extraordinary income. The income was from the sale of its retail distribution business to a joint venture company formed in association with Sun Life Assurance Company of Canada. This strategic move has earned the company profits of Rs 441 m (94% of profit after tax). Retail asset finance was the biggest contributor to BGFs operating revenues and accounted for 50% of income in FY00. Capital market activity formed 30%, followed by 10% from treasury operations and the balance from corporate finance, syndication & other fee income. After the divestment of retail asset distribution business, BGF has also decided to sell its retail asset finance business to its wholly owned subsidiary. The company will then focus on its three area of operations, which include consumer durable finance, corporate finance and capital markets.

During the second quarter of the current year, the company reported a 79% drop in the profits. The shortfall in profits during the quarter was primarily due to negligible IPO related activities and general economic slow down.

Financial Snapshot
(Rs m) 2QFY00 2QFY01 Change
Operating income 209 146 -30.2%
Other Income - -
Interest Expenses 135 100 -26.2%
Operating Profit (EBDIT) 74 46 -37.3%
Operating Profit Margin (%) 35.4% 31.7%
Other Expenses 40 33 -17.2%
Depreciation 10 9 -6.3%
Profit before Tax 25 5 -81.8%
Tax 3 -
Profit after Tax/(Loss) 22 5 -79.4%
Net profit margin (%) 10.4% 3.1%
No. of Shares (eoy) (m) 15.8 15.8
Diluted Earnings per share* 5.5 1.1
*(annualised)

The continued sluggishness in the economy and a slowdown in the transportation and automobile sector adversely impacted the retail finance business. This has resulted in contraction in volume and spread during the year, in turn affecting the profits adversely.

At the current market price of Rs 27, Birla Global Finance is available at a P/E of 9 times its first half annualised earnings and a Price/Book Value ratio of 0.6 times. The price has come down by more than 70% from a high of Rs 106 in December 1999. This is partly due to a disappointing financial performance. The ability of the company to establish as a strong player in corporate finance and capital markets could trigger a re-rating in the stock.

Valuations
Particulars BGF KMFL Tata Finance
Market Price (Rs) 27 86 66
P/E (x) 9.3 4.9 5.5
Price/Book Value (x) 0.6 0.8 0.6

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