 "Aditya Birla Finance")
Analysts are upbeat on the long-term prospects of Aditya Birla Capital (ABCL) and have set price targets between 20 per cent and 45 per cent higher than the current market price. Thanks to its strong franchise in non-banking financial company (NBFC), housing finance, asset management, and life insurance, the Birla group firm offers a one-stop option to investors wanting to play the financial services theme.
ABCL’s December quarter earnings were largely in line with expectations, even though certain verticals narrowly missed estimates.
Most brokerages believe the financial services company is on track to achieve the targets it has set out for 2023-24 (FY24), which includes breaking into the top 100 club of the most-valued listed companies.
“After its March 2021 quarter results, the company had put out a three-year guidance. As of December 2021, the company had achieved some of these targets, especially in the lending business, with margins increasing substantially,” says a note by Morgan Stanley.
“The company is very steadfast and has exhibited high agility in its journey towards its FY24 targets, a large proportion of which has either been achieved or will be over the course of 2022-23 (FY23),” adds another note by Motilal Oswal.
Some long-term growth drivers for the stock are a pick-up in loan growth, reduction in bad loans, improvement in return on equity (RoE), growth in the mutual fund (MF) business, and break-even in the health insurance business.
For Aditya Birla Finance, its NBFC business, the company is targeting to increase the share of retail and small and medium-sized enterprises' assets under management to 65 per cent and deliver return on assets of 2.5-2.7 per cent by FY24.
For its housing finance vertical, ABCL intends to double the feet on the Street, with special focus on smaller towns. For the MF business, the company is targeting an annualised growth of 15 per cent, with improvement in the equity mix. The company is aiming for similar growth for its insurance business, with improvement in the operational metrics.
“We expect ABCL to expand its consolidated RoE to 13 per cent by FY23E, from 8 per cent in 2019-20, driven by an improvement in profitability in the operating businesses and health insurance, which were earlier a drag on RoE,” says a note by Investec.
When it comes to the sum-of-the-parts valuation, the NBFC vertical brings in the most value to ABCL. Credit Suisse expects healthy growth in the loan book and an improvement in net interest margin (NIM).
“We expect FY23-24E loan growth to double to 13-14 per cent compound annual growth rate, led by branch expansion in tier III/IV cities and introduction of new products (buy now, pay later, unsecured small-ticket). NIMs have already widened by 110-130 basis points in the past two years, and risk-adjusted NIMs have also improved on rising share of retail loans and affordable housing,” says a Credit Suisse note.
