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Continues to deliver healthy performance across businesses

* Aditya Birla Capital (ABCAP)’s 4QFY24 consolidated revenue grew 32% YoY to ~INR121b and consolidated PAT increased 33% YoY to ~INR8.1b.

* The company added ~179 branches in FY24 for a total branch count of 1,474. The company’s branch expansion is targeted at driving penetration into Tier III/ IV towns and new customer segments.

NBFC: AUM growth healthy; asset quality continues to improve

* NBFC loan book grew 31% YoY/7% QoQ to ~INR1.05t. Loans to Retail, SME and HNI customers constitute 67% of the total loan portfolio. 4QFY24 disbursements stood at ~INR181b and grew 16% YoY.

* The MSME segment constituted 53% of the total portfolio, and management plans to continue growing the same.

* Asset quality continued to improve with GS2 + GS3 assets declining ~35bp to ~4.5%.

* ABFL continued to expand its geographical reach by adding 89 branches in FY24, taking the total to 412.

* ABCAP acquired a portfolio, which consists of small ticket loans against property. The average tenure of these loans is 12 years, yielding returns ranging from 11-12%.

Housing Finance: AUM growth healthy even as NIM moderates QoQ

* The company reported a broad-based growth in 4QFY24 across customer segments, with 64% YoY growth in disbursements to ~INR29.3b. The loan book grew 33% YoY to INR184.2b.

* NIM contracted ~25bp QoQ /65bp YoY to ~4.4%. 4QFY24 RoA/ RoE stood at 1.9%/ 13.9%.

*  Asset quality improved with GS2 + GS3 assets declining ~65bp QoQ to ~2.9%.

Asset management: increase in domestic equity share

* Quarterly Average AUM (QAAUM) rose 21% YoY to ~INR3.31t in 4QFY24 on the back of an uptick in equity performance. Individual monthly average AUM grew 23% YoY to INR1.73t in Mar'24.

* The domestic equity mix increased to ~46% (PQ: ~44%). SIP inflows grew 25% YoY to ~INR12.5b in Mar’24.

Life Insurance: VNB margin contracts YoY; healthy 13th/61st month persistency

* Individual FYP grew 2% YoY to ~INR30.7b in FY24, while renewal premium grew 24% YoY to INR91.6b in FY24.

* The decrease in G Sec rates, along with a higher proportion of ULIP, led to a decline in net VNB margins to 20.2% in FY24 from 23% in FY23. 13th month persistency improved to ~88% in Mar’24 (PY: ~87%)

* Aditya Birla Life Insurance (ABLI) commenced business with newer partner banks like IDFC First and Bank of Maharashtra. During the previous quarter, it signed a Corporate Agency agreement with Axis Bank, which will commence sourcing business in May

Health Insurance: market share among SAHIs improves; net loss widens

* GWP in the Health insurance segment grew 36% YoY to ~INR37b, with Retail contributing 52% of total GWP. Health Insurance business continues to scale up with focus on expenses. The combined ratio remained stable at 110%. Management expects the combined ratio to decline to 100%.

* Market share among standalone health insurers (SAHIs) rose from 10.4% to 11.2%. Net loss in FY24 declined to INR1.8b (FY24: Net loss of ~INR2.2b).

Highlights from the management commentary

* ABCAP continues to improve its operating performance and guided that it will double the FY23 AUM by Mar’26.

* ROA in the NBFC to be increased to ~3% over next 3 years from current levels of 2.5%. ROE will be a result of the overall capital structure.

* Strengthening digital structure: The ABCD app went live. It offers a portfolio of more than 20 products and services such as payments, loans, insurance, and investments.

Franchise continues to deliver healthy performance; Reiterate BUY

* ABCL has exhibited a significant improvement in operational metrics across all business segments in FY24. FY25 will see an uptick in growth, lower credit costs, and better return ratios.

* The asset management business is likely to churn out better profitability, driven by an improvement in revenue as well as cost rationalization. VNB margin and persistency margin in the Life Insurance business continue to improve. The drag on consolidated PAT from other segments, such as Health Insurance, will decline, improving overall profitability.

* We expect a consolidated PAT CAGR of ~16% over FY24-26E. The thrust on cross-selling, investments in digital, and leveraging ‘One ABC’ will lead to healthy return ratios, even as we build in a consolidated RoE of ~14% in FY26. We reiterate our BUY rating on the stock with our revised SoTP (Mar’26E)- based TP of INR260.

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SEBI Registration number is INH000000412