01-01-1970 12:00 AM | Source: Motilal Oswal Financial Services Ltd
Update on Aditya Birla Capital Ltd by Motilal Oswal
News By Tags | #4265 #872 #1302 #580

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All-round improvement; earnings quality much better

* Consolidated revenue grew 16% YoY to INR23.6b in FY22. Consolidated PAT (after minority interest) grew 51% YoY to ~INR17.1b in FY22 and includes a net gain of INR1.6b from the sale of ~1% stake in ABSLAMC via an IPO in Oct’21.

* The management has been steadfast and has exhibited high agility in its journey towards its FY24 targets, a large proportion of which has either been achieved already or will be over the course of FY23.

NBFC – Improvement in asset quality and share of SME, HNI, and Retail

* Loan book grew 13% YoY to INR552b. The share of Retail and SME lending (including HNI) grew ~200bp QoQ to 62%. Within Retail lending, the share of Unsecured loans rose 5pp YoY to 52%.

* NIM and fees improved to 6.4% (up 40bp YoY) in 4QFY22, with the cost of funds reaching yet another multi-quarter low of 6.73% (down 2bp QoQ).

* GS3 improved to 3.1% (down 80bp QoQ) under RBI’s revised asset classification norms, with credit costs at 1.24% in 4QFY22

Housing Finance – Affordable segment continues to gain momentum

* Disbursements rose 16% YoY in 4QFY22. The proportion of Affordable Housing in the loan mix improved to 31% from 29% in 3QFY22.

* NIM improved to 4.24% (up 100bp YoY) in FY22, with the CIR ratio ~38%. GS3 improved to 2% (down 10bp QoQ), with credit costs at 65bp in FY22. Restructured loan book under moratorium stood at 3.4% as of Mar’22.

* Proportion of direct sourcing stood at 73%. The management targets to increase direct sourcing to 80% by Mar’23. Its presence in Tier III and IV cities stood at 68%

AMC segment – PBT yield improved YoY

* Average AUM grew 9% YoY to INR3.1t in 4QFY22. Domestic AUM rose 10% YoY to INR2.95t. Within this, equity AAUM grew 25% YoY to INR1.21t, and the domestic equity mix expanded to 41% of AUM.

* The AMC acquired 1.3m folios in FY22. Its total Retail folio stood at 7.9m.

* FY22 PBT/AUM improved by 2bp YoY to ~31bp

Life Insurance: Improving VNB margin and strong VNB growth

* Net VNB margin rose ~440bp YoY to 15% in 4QFY22. ABCAP improved its margin by actively re-pricing its Term/Protection products, introducing new products, and improving the productivity of its distribution channel.

* The 13th month persistency improved by 300bp YoY to 85% in FY22.

* Renewal premium was up 24% YoY to INR65b in FY22, with renewal collection from the Digital channel at 73%. PBT rose 15% YoY to INR1.75b in FY22.

Health Insurance: Breakeven (excluding COVID claims) achieved in 4QFY22

* GWP grew 33% YoY to ~INR17b in 4QFY22. Retail and rural contributed 76% to the total business. Including/excluding the COVID-19 claims, the combined ratio stood at 127%/109% in FY22

Valuation and view

* The company has exhibited a strong improvement in operational metrics across business segments over the last four quarters. With the worst on asset quality behind it, the coming years will see an uptick in its growth and margin profile, lower credit costs, and better return ratios.

* The Asset Management business will likely churn out better profitability, driven by an improvement in revenue as well as cost rationalization. The improvement in persistency and VNB margin in the Life Insurance business continues. The drag on consolidated PAT from other segments such as Health Insurance will fall, further improving overall profitability. We look to revise our estimates after the earnings call on 13th May’22

 

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