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On track to deliver ahead of FY24 targets; earnings beat led by accelerated growth and superior NIMs

Aditya Birla Capital’s (ABCL) earnings trajectory surprised positively in Q1FY23 with its lending portfolio surging 22% YoY / 4% QoQ, NIMs expanding 10-15bps QoQ, credit cost being contained (1.1% in NBFC, 0.5% in HFC) and stable ‘cost to income’ ratio. Consolidated PAT at Rs4.29bn in Q1FY23 (up 42%YoY) was well above our estimate. Strategy of granularisation, retailisation and diversification within business segments continued. RoA of 2.5% / 1.9%, RoE of 14.3% / 13.7% in NBFC / HFC improves visibility on achieving FY24 guidance ahead of targeted period.

Key highlights: (1) Retail book was up 5% QoQ / 26% YoY driving retail + SME mix (in NBFC) to 64% in Q1FY23 vs target of 65% by FY24. (2) Disbursements in affordable housing segment more than doubled YoY, thereby increasing affordable housing mix (in HFC) to 39% vs FY24 target of 65%. (3) Optimised borrowing cost supported NIM expansion by 10bps QoQ to 6.47% for NBFC and by 16bps QoQ to 4.59% for HFC. (4) There was a moderate increase in stage-3 pool, but decline in stage-2 for NBFC as well as HFC, which contained credit cost. (5) Despite expansion of network and investment in technology/analytics, ‘cost to income’ ratio remained steady.

Ms. Vishakha Mulye (ex-ED, ICICI Bank) has joined as CEO w.e.f. 1 st Jun’22. She will drive the group’s existing structural strategy with focused execution and further-accelerated momentum. Company aims to build scale with focus on customer acquisition through direct channels and partnerships and deepen penetration with increased presence. ABCL will leverage technology and analytics and drive synergies across the group ecosystem through cross-sell and upsell, which will contribute towards the bottomline. Eventually, all this will help boost the company’s RoA / RoE profile, in our view. Maintain BUY with a revised SoTPbased target price of Rs161 (earlier Rs169).

Aditya Birla Finance (ABFL) – 26% YoY loan growth, SME + retail mix at 64%, 10bps NIM expansion to 6.47%, credit cost contained at 1.1%:

loan growth, superior NIMs (~6.47%, up 10bps QoQ), stable ‘cost to income’ ratio at ~31% and improved credit cost (1.1% vs 1.2% QoQ) supported RoA profile at 2.5% and RoE at 14.3%. Almost 15% QoQ / 80% YoY growth in retail loanbook led to 5% QoQ / 26% YoY growth in overall loanbook. Direct and digital ecosystem sourcing increased to 51% (vs 42% YoY). Stage-3 assets inched up a tad by 10bps QoQ to 3.2% with slippages primarily from SME (stage-3 at 2.1% vs 1.7% QoQ) and retail (3% vs 2.9%). Credit cost nonetheless was contained at 1.1%. Going ahead, ABFL aims to clock >20% AUM growth with 65% SME + retail mix in FY23.

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