Buy AB Capital ltd For Target Rs.400 By Emkay Global Financial Services Ltd
ABCAP reported a steady Q4FY26, with strong growth across lending business segments and stable profitability metrics. The NBFC business remained the key contributor, with AUM at Rs1.6trn (+27% YoY), record quarterly disbursements of ~Rs250bn, and continued traction in retail and MSME segments. Asset quality improved, with GS2+GS3 at 2.4% and credit cost at 1.04%, while profitability remained healthy with RoA at 2.31%. The management remains confident about delivering 24–25% AUM growth, stable credit costs, and RoA expansion to ~2.5% over the next few quarters. The Housing Finance business continued to scale, with AUM at ~Rs475bn (+53% YoY), improving asset quality (Stage 2+3 at 0.76%), and RoA at 2.07%, with guidance of ~2.1–2.2% RoA and target of Rs1trn AUM in next 2-3 years. In AMC, QAAUM grew 17% YoY despite volatile markets in Q4, while Life Insurance delivered 15% YoY growth in individual APE and healthy VNB margin expansion to 20.6% in FY26. Health Insurance also maintained strong momentum, with GWP growth of 39% YoY and improvement in combined ratio to 103% during FY26. Overall, the management highlighted continued focus on leveraging digital platforms and AI-led initiatives across businesses to improve productivity, customer experience, and risk management, while maintaining growth in retail and MSME segments. We build in a capital raise of ~Rs20bn in FY27E in NBFC to fund its strong growth. We maintain BUY and Mar-27E TP of Rs400 (valuing the SA NBFC at 2x FY28E P/B and subsidiaries at ~Rs163/sh, after applying 20% holdco discount).
Steady performance with healthy growth
ABCAP reported a steady Q4FY26, with broad-based growth and stable profitability. NBFC AUM grew 27% YoY (+8% QoQ) to Rs1.60trn, with disbursements at ~Rs250bn (+28% YoY). Retail+MSME formed 68% of disbursements and ~85% of incremental growth. Asset quality improved (GS2+GS3 at 2.4%, credit cost at 1.04%), with 2.31% RoA (NII: +18% YoY to Rs81.70bn). HFC AUM rose 53% YoY to ~Rs475bn, with disbursements at Rs79.8bn (+37% YoY), Stage 2+3 at 0.76%, and RoA at 2.07%, aided by operating leverage and lower credit cost. AMC QAAUM grew 17% YoY to ~Rs4.74trn, with equity AUM at ~Rs1.97trn and SIP inflows at Rs12.04bn. Life Insurance saw 15% YoY growth in individual APE, with VNB margin at 20.6% (+260bps YoY). Health Insurance saw 39% YoY premium growth, with combined ratio improving to 103%.
Positive outlook supported by steady execution
Outlook remains constructive, supported by ABCAP’s diversified platform, continued traction in retail and MSME lending, and improving asset quality, which underpin RoA expansion. NBFC is guided to deliver ~24–25% growth, with RoA trending to ~2.5%. HFC is entering a stronger scale-up phase, with target RoA of ~2.1–2.2% and incremental support from the recent capital infusion. Insurance continues to see steady growth with improving product mix and operating metrics. AMC performance remains supported by consistent flows and fund performance. With growth visibility, stable credit costs, and ongoing investments in digital and AI to enhance productivity, we remain constructive on ABCAP. We retain BUY and Mar-27E TP of Rs400, valuing the standalone NBFC at 2x FY28E P/B and subsidiaries at ~Rs163/sh after a 20% holdco discount.
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