Buy AB Capital Ltd For Target Rs.320 By Emkay Global Financial Services Ltd
We met Rakesh Singh (ED and CEO – NBFC) of AB Capital for an update on the company, its NBFC business strategy and outlook, and the recent developments in the sector. KTAs: i) Per guidance, the company is progressing well in terms of AUM growth (20-25%), credit cost (~1.3%), and asset quality (broadly stable). ii) FY26-exit ROA (NBFC) to expand to ~2.4% on better yields-led NIM expansion, with stable opex and credit cost. iii) Given the demand stimuli from policymakers (Income Tax slab increase, GST cut, Repo rate cuts, etc), credit growth at the system level should improve ahead. iv) The noise around increasing asset quality issues in MSME should not affect the company, as the concerns are more in the micro segment (where the company has minimal exposure); also, it has nearly 43% of its unsecured MSME book backed by CGTMSE. Overall, the mgmt has a well-thought-out and credit-cycle-tested business strategy and resources to deliver profitable growth with lower volatility and higher predictability. We retain BUY and an unchanged SoTPbased Jun-26E TP of Rs320 (standalone FY27E P/B of 2x, resulting in Rs205/share; subsidiaries’ value after a 25% holdco discount at Rs115/share).
Driving quality earnings over pure growth
The management retained its FY26 growth guidance of ~22-25%, indicating that the focus is on profitable growth while maintaining asset quality. The portfolio mix is expected to remain predominantly secured, driven by the scale-up of SME and corporate and midmarket lending; small-ticket unsecured MSME exposure is deliberately contained on macro uncertainties. Growth in retail/MSME is being propelled via proprietary platforms such as ABCD and Udyog Plus, with enhanced focus on direct sourcing, complemented by a calibrated rebuilding of personal and consumer loans (underpinned by strengthened underwriting practices). This strategy would support yield expansion while keeping credit costs contained (guidance of 1.3%), thereby driving ROA to ~2.4% by FY26E exit.
Steering through macro volatility with disciplined execution The management addressed concerns around MSME stress by clarifying that its core focus is on middle-layer MSME customers and not base-level micro enterprises. This strategic focus over a long period has led to stronger asset quality and lower credit costs vs peers. Within the SME book, unsecured small-ticket loans account for only ~1.3% and had shown early signs of stress; however, this segment was consciously slowed down 2– 3 quarters back, limiting incremental risk. On tariffs, the management noted that the impact would be concentrated in export-oriented sectors such as textile, where the company’s exposure is negligible.
Strengthening core metrics; maintain BUY
AB Capital entered FY26 on a steady footing, with resilience in core businesses and support from improving macros, rate cuts, GST reduction, and operating leverage; these position it for stronger operating metrics ahead. We retain BUY with an unchanged Jun26E TP of Rs320, implying a standalone FY27E P/B of 2x
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