Aditya Birla Finance may merge with Aditya Birla Cap within next 12 months

Aditya Birla Finance, a systemically important non-banking financial company (NBFC), is set to merge with its parent Aditya Birla Capital (ABCL) in about a year's time to create a large unified NBFC.

This will increase total capital adequacy by approximately 150 basis points (bps) and reduce leverage to 4.15 per cent for the amalgamated entity on a proforma basis

The proposed amalgamation will result in compliance with the scale-based regulations of the Reserve Bank of India (RBI), which require mandatory listing of Aditya Birla Finance by September 30, 2025, ABCL said in a statement on Monday.  The amalgamation is subject to regulatory and other approvals as may be required.

Kumar Mangalam Birla, chairman of Aditya Birla Group, said that the financial services business has scaled smartly to emerge as a core growth engine for the Aditya Birla Group.

The proposed amalgamation will create a strong capital base for Aditya Birla Capital to grow its business and participate in India’s growth story, he added.

This is the second instance of such a merger in the NBFC space. Earlier, Tata Capital Financial Services merged with its parent entity Tata Capital from January 1, 2024. Tata Capital, which is the holding company, is yet to be listed on the stock exchange.

Upon the scheme becoming effective, Vishakha Mulye will become managing director (MD) & chief executive officer (CEO) while Rakesh Singh will be executive director and CEO (NBFC) of the amalgamated Birla company. Mulye is currently CEO of ABCL and Singh is MD & CEO of Aditya Birla Finance.

Mulye, in an analysts’ call, said when the company raised capital of Rs 3,000 crore, it had said it would be sufficient for 18-24 months.

So, the company would come back to the market probably by December 2024 or maximum by 2025.

This (the amalgamation) will give a headroom for 12-15 months, depending on the growth trajectory. This amalgamation is a tax neutral exercise. So, to that extent, there will not be any major cost of amalgamation.

There will be rationalisation of people and the structure will get fine-tuned, Mulye added.

The leverage of the amalgamated entity would come down sharply. At present, the leverage of the NBFC is around 6.5 and for the consolidated entity, it would be around 4.15. So, there will be huge headroom to leverage the balance sheet for further growth.

The outer limit for amalgamation is about 9-12 months. But the expectation is that it would happen much earlier because both the companies have registered offices in Gujarat, she said in an analyst call.     

The amalgamation is expected to lead to stakeholder value enhancement as well as rationalisation and simplification of the group structure. It would also improve financial stability and increase operational efficiency, the company said.

Aditya Birla Capital managed aggregate assets under management (AUM) of about Rs 4.1 trillion, a total lending of Rs 1.15 trillion, and gross written premium of Rs 13,500 crore in life and health insurance businesses as of December 31, 2023.

It reported a consolidated revenue of Rs 26,791 crore and a profit after tax (PAT) of Rs 2,090 crore for April-December 2023 (9M FY24).

The company has a pan-Indian presence with 1,462 branches across all businesses as of December 31, 2023. It is committed to driving quality and profitable growth by harnessing the power of data, digital and technology.

The proposed amalgamation will help us to serve customers better, achieve efficient utilisation of capital and enhance operational efficiencies, added Mulye.