Buy Aditya Birla Capital Ltd for the Target Rs.480 by Motilal Oswal Financial Services Ltd
Steady quarter; margins remain flat in NBFC business Lending book (HFC+NBFC) up ~32% YoY; asset quality broadly stable
* Aditya Birla Capital’s (ABCAP) 1QFY27 consolidated revenue grew 29% YoY to ~INR147b and consolidated PAT grew ~40% YoY to ~INR11.8b.
* Overall lending book (NBFC + Housing) grew 32% YoY/6% QoQ to INR2.19t. Total AUM (AMC, life insurance and health insurance) grew ~36% YoY to INR7.53t. Mutual fund quarterly average AUM grew 6% YoY to INR4.28t.
* Life Insurance individual FYP grew by ~20% YoY to INR9.52b and Health Insurance GWP grew ~50% YoY to INR22b.
* The company successfully raised equity growth capital of INR40b from promoters and International Finance Corp. via a preferential allotment.
NBFC: AUM up ~28% YoY; NIM expansion still few quarters away
* NBFC loan book grew ~28% YoY and 5% QoQ to ~INR1.67t. 1QFY27 disbursements grew ~34% YoY to ~INR212b.
* NIM (inc. fee income) was flat QoQ at 6.07% (PQ: 6.08%). Yield (incl. fee income) was down ~7bp QoQ to 12.58%.
* Management indicated that yields (excluding fee income) remained stable QoQ, while lower fee income was offset by a decline in CoF, resulting in stable margins during the quarter. Margins and yields are expected to improve over the coming quarters, supported by an increase in the share of P&C and unsecured businesses from ~25% currently to ~28-30%.
* PBT grew ~32% YoY and 10% QoQ to INR12.2b. 1QFY27 RoA stood at ~2.4% (PQ: 2.3%).
* Asset quality was stable QoQ with GS2 + GS3 loans at ~2.4%. ? ABCAP shared its plans to enter the gold loan segment as part of its strategy to diversify into retail collateral-backed lending. With operational readiness largely in place, the company aims to scale up to ~200-300 standalone branches by Mar’27 and expand to ~1,000 branches over the next three years, establishing a pan-India presence.
* We model NBFC business to deliver AUM/PAT CAGR of ~23%/27% over FY26-28E, leading to RoA/RoE of 2.2%/15.5% in FY28E.
HFC: Robust growth in HFC AUM; asset quality broadly stable
* HFC AUM grew 50% YoY/9% QoQ to ~INR518b. 1QFY27 disbursements grew 39% YoY to ~INR75b. NIM (incl. fee income) rose ~17bp QoQ to 5.2% (PQ: 5.03%).
* PBT grew ~95% YoY and 18% QoQ to INR3b. 1QFY27 RoA stood at 2.12% (PQ: 2.07%). Asset quality was stable QoQ, with GS2+ GS3 at ~0.8%. S3 PCR declined ~190bp QoQ to ~57%.
* Management targets HFC AUM of INR1t over the next 6-8 quarters, with RoE expected to improve meaningfully over the period. The company targets to improve RoE to ~13% by 4QFY27 and to ~15% in 6-8 quarters. We model HFC loan book CAGR of ~37% over FY26-FY28E.
Valuation and view
* ABCAP sustained its strong operational performance during the quarter, with healthy loan growth in both HFC and NBFC segments. Asset quality improved further across all products, including the unsecured portfolio. However, NBFC NIM remained stable QoQ (contrary to earlier expectation of expansion) and the trajectory of NIM improvement in the NBFC will be a key monitorable for the stock going forward.
* We expect a consolidated PAT CAGR of ~28% over FY26-28. The thrust on crossselling, investments in digital, and leveraging ‘One ABC’ should drive healthy profitability, resulting in RoE of ~14% by FY28E. Reiterate BUY with an SoTP (Mar’28E)-based TP of INR480.
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