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Strong show amid noise around lower-ticket unsecured retail loans

ABCAP registered a sturdy performance in Q2FY24, with the lending business delivering robust loan-book/profitability growth, asset quality seeing slight improvement and the non-lending business witnessing a steady performance. The company sees its smaller ticket unsecured retail-loan portfolio holding up per expectations, and maintains its continuous monitoring and calibration of growth, interest rate and payouts to partners, in sync with emerging assetquality trends. With Company’s abiding investment journey on the tech front, building an omni-channel distribution network and realizing its synergies with the AB Group ecosystem, the management preserves an optimistic outlook. Given the Q2FY24 performance and positive growth outlook, we keep our FY24- 26 estimates unchanged and reiterate our BUY rating on the stock, with an unchanged Sep-24E TP of Rs 225/share.

AB Capital: Financial Snapshot (Consolidated)

Delivers another strong quarter of growth and profitability

The NBFC business saw a robust 44% YoY AUM growth and 32% YoY disbursement growth. While NIM marginally dipped on sequential basis to 6.87%, RoA stood at 2.51% for Q2FY24. Given the rising unsecured loans, write-off at Rs3.7bn for Q2 stayed high, but credit cost at 1.59% was just a minor increase QoQ. The HFC business saw steady AUM growth of 24% YoY and 6% QoQ, whereas NIM came in at 4.88%, translating into an improved RoA of 2.03%. The Life Insurance business saw 13% YoY growth in Individual APE during H1FY24, whereas VNB margin logged an improvement to 14.2%. The Health Insurance business saw ~23% growth in gross premiums, and H1 combined ratio at 119% (up 7ppts). The AMC business saw 5% QoQ growth in AUM to Rs3,109bn; however, PAT declined 4% QoQ to Rs1.8bn. ABCAP reported an overall healthy performance, with consolidated revenue growing 22% YoY/8% QoQ to Rs88.3bn, while PAT grew 44% YoY/9% QoQ to Rs7.05bn during Q2FY24 (Exhibit 1).

Continuous investments in tech and distribution

ABCAP continues to invest in technology and building an omni channel distribution network. Further synergies with the ABG ecosystem are expected to fire the loan-book growth over the next few years. While the management has calibrated the growth in the small-ticket unsecured loan segment, various initiatives including the UDYOG Plus and the B2C platform are expected to fuel the growth momentum for the lending business, leading to the company achieving its guidance of doubling the loan book every 3 years. Given its widespread distribution network and the Aditya Birla brand, the Life and Health Insurance businesses are expected to clock better-than-industry growth going forward.

We reiterate BUY, with unchanged Sep-24E target price of Rs225/share

Against the backdrop of an in-line Q2FY24 performance, we have kept our FY24-26 estimates unchanged and reiterate our BUY rating on the stock, with an unchanged Sep24E SOTP-based TP of Rs225/share (FY25E P/B of 2x for ABFL and 1.8x for ABHFL).With the lending businesses firing up, ABCAP is well positioned; however, the broader sector concern around low-ticket unsecured retail loans is likely to weigh on the share price in the near term (Exhibit 2).

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