HIGHLIGHTS
- Aditya Birla Finance Limited (ABFL), the NBFC arm of Aditya Birla Capital, reached a remarkable achievement in FY24 by surpassing ₹1 Lakh Crore in Assets under Management (AUM) as of March 31, 2024, with a year-on-year increase of 31%.
- With a 405.5% YoY surge, Aditya Birla Capital Ltd.’s Standalone Annual Net Profit of ₹714 Cr in March 2024 showcases a new era of profitability.
- Aditya Birla Capital Ltd. reported an impressive Annual Revenue of ₹861 Cr in March 2024, marking a substantial 286.8% YoY growth. This remarkable increase underscores the company’s rapid expansion and effective strategy execution.
INDUSTRY OUTLOOK
India’s Non-Banking Financial Company (NBFC) sector in India plays an increasingly pivotal role in catering to diverse borrower needs across various geographies and financial segments. In recent years, the Indian financial services landscape has undergone significant transformation, fuelled by factors such as the rise of neo-banking, digital authentication, Unified Payments Interface (UPI), and mobile banking. This wave of digitization has led to the modularization of financial services, providing NBFCs with opportunities to expand their reach and impact.
As of March 2024, the assets under management (AUM) of the NBFC sector in India stood at approximately ₹47 trillion. This figure is expected to exceed ₹50 trillion in the current financial year, highlighting the sector’s robust growth trajectory and expanding role within the Indian financial ecosystem. NBFCs have demonstrated remarkable resilience, maintaining strong capital positions, improved asset quality, and robust provisioning measures, all of which have supported higher profitability. The sector has particularly leveraged digital tools to provide alternative financing options, filling a critical gap for micro, small, and medium enterprises (MSMEs) and retail borrowers who face challenges accessing credit through traditional banks. Consequently, NBFCs are becoming the backbone of India’s credit market. The Government of India has introduced a series of reforms to bolster these sectors, including the Pradhan Mantri Mudra Yojana (PMMY), Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), and various digitization initiatives, such as the Open Network for Digital Commerce (ONDC) and National Infrastructure Pipeline under the Gati Shakti. These reforms enhance access to credit for smaller businesses and retail borrowers, allowing NBFCs to capitalize on the growing demand and have the Government’s backing in case things go sour.
However, the Reserve Bank of India (RBI) has adopted a cautious stance toward liquidity, maintaining a tight policy expected to continue through the latter part of 2024. On November 16, 2023, the RBI introduced new regulations increasing risk weights for unsecured consumer credit and bank lending to NBFCs. This move aims to recalibrate the risk associated with the exponential growth in unsecured lending and underscores the need for sound risk management practices within the sector.
Aditya Birla Capital stands out among its peers in the financial services sector, which includes companies like HDFC, Chola Finance, and IIFL Finance. While these companies are prominent in providing diversified financial solutions, Aditya Birla Capital offers a unique value proposition with a Price-to-Earnings (P/E) ratio of 13.29, significantly lower than the industry median of 23.24. This lower P/E ratio suggests a potential undervaluation, especially when compared to peers like Bajaj Finserv (P/E of 32) and Jio Financial ~124.
BUSINESS DESCRIPTION
Aditya Birla Capital Ltd. is a diversified financial services company catering to the varied needs of its customers through a comprehensive range of products and services. Its business spans multiple segments, each addressing critical areas of finance.
- Aditya Birla Housing Finance Limited (ABHFL): ABHFL ranks as one of India’s fastest-growing Housing Finance Companies (HFCs), with an impressive Asset under Management (AUM) of ₹18,420 Crore. Holding an AAA rating, ABHFL offers a full spectrum of housing finance solutions, including affordable home loans, prime home loans, loans against property, and construction finance.
- Aditya Birla Sun Life AMC Limited (ABSLAMC): As the largest non-bank Asset Management Company (AMC), ABSLAMC manages an AUM of ₹3,25,232 Crore (average for Q4 FY24). ABSLAMC has expanded its retail base with robust growth in SIP (Systematic Investment Plan) flows and individual assets under management. It operates a vast distribution network, covering 290+ locations with over 81,000 mutual fund distributors and 300+ national distributors.
- Aditya Birla Sun Life Insurance Limited (ABSLI): A leading player in the private life insurance sector, ABSLI reported a total premium of ₹17,260 Crore and an Embedded Value (EV) of ₹11,539 Crore. ABSLI’s offerings encompass a variety of life insurance solutions, including protection plans, child future solutions, wealth and protection plans, health and wellness coverage, retirement, and savings with protection options.
- Aditya Birla Health Insurance Limited (ABHI): One of India’s fastest-growing Standalone Health Insurers (SAHI), ABHI saw a 36% YoY growth in Gross Written Premium (GWP). ABHI emphasizes a unique ‘Health First’ model that rewards wellness, covering over 5,000 cities and 11,000+ hospital partners nationwide.
Through these business segments, Aditya Birla Capital Ltd. demonstrates a commitment to financial empowerment across housing finance, asset management, life insurance, and health insurance, offering tailored solutions to meet the evolving needs of its customers.
FINANCIAL PERFORMANCE
ABCL delivered a thumping financial performance in FY24, with consolidated revenue growing 30% year-over-year (YoY) to ₹ 39,050 crores and PAT numbers growing by 41% YoY to ₹ 2,902 crore, the highest-ever figure. Its main growth engine, the NBFC business, ABFL, grew handsomely by 31% YoY and reached the significant AUM of over ₹ 1lakh crore. ABFL’s PBT grew by 43% YoY to ₹ 2,987 crore. Its housing finance business, ABHFL, also increased speed with growth in disbursement at 59% and AUM growth at 33% YoY. In this particular segment, its mutual fund arm, ABSLAMC, average AUM grew by 12% YoY, but its PBT numbers grew strongly by 27% to ₹1,008 crore. The company’s management executed superbly across segments, making their health insurance business one of the fastest-growing standalone health insurance players. The management has also understood the importance of digitalization and technological advancement. It has made significant progress in developing different platforms that can become considerable leverage in the coming times.
ABFL makes up about 3/4th of the company’s PAT, and it is aiming to double its AUM from March 2023 to March 2026. Close to 72% of its overall portfolio is secured, and the provision coverage ratio has also gone up from 39.5% in Mar’22 to 49.9% in Mar’24, thereby giving reasonable safety to investors. ABFL also posted a jump of 2.34% in ROE numbers, leading it to deliver the final ROE figure of 17.1% in Mar’24. ABHFL, one of the fastest growing housing finance companies, also grew its AUM 33% to ₹ 18,420 crore and healthy ROE numbers of 13.9%. ABSLAMC, the largest non-bank AMC with a strong distribution network of more than 81,000 mutual fund distributors and over 300 national distributors, is also gaining strength from strength. With a 25% uptick in the Monthly SIP Flows YoY and PAT of ₹ 780 crore, this business segment contributes second most to the company’s consolidated PAT numbers. Other business verticals also performed decently, but its insurance business will be interesting to look forward to as it increases and can become an important vertical for the company.
The company’s valuation numbers also look comfortable, with its PE ratio close to the 5-year average and below the sector’s average PE numbers. The company has a strong and reputed Promoter group. Investors can also draw confidence from the 68.9% promoter holding and zero promoter pledges.
CURRENT DEVELOPMENTS AND FUTURE EXPECTATIONS
Financials – Aditya Birla Capital Ltd. reported a strong performance for the quarter ending June 2024, with revenue reaching ₹8,881 Crore, marking a 25.9% year-over-year growth. The company also recorded a net profit of ₹759 Crore, reflecting a 17% increase compared last year. This growth underscores the company’s effective financial strategies and strong position in the market.
Aditya Birla Capital’s NBFC loan book grew 25% YoY to about ₹1.07 trillion, with first-quarter FY25 disbursements up 2% YoY at ₹134 billion. Retail, SME, and HNI loans comprised up 66% of the portfolio. Adjustments in unsecured loans slightly lowered yields, bringing net interest margins down by 30 bps to 6.9%, a level management expects to maintain. In 1QFY25, Aditya Birla Capital’s Quarterly Average AUM rose 19% YoY to approximately ₹3.52 trillion, driven by stronger equity performance. Individual monthly average AUM reached ₹1.86 trillion in June 2024, a 24% YoY increase. The domestic equity share was about 46%, up slightly from the previous quarter’s 45.8%. Monthly SIP inflows saw a 39% YoY rise, reaching around ₹13.7 billion in June 2024.Housing Finance saw robust growth for Aditya Birla Capital in 1QFY25, with disbursements rising 89% YoY to ₹30.7 billion and the loan book expanding 41% YoY to ₹204 billion. Asset quality also continued to improve across customer segments. In 1QFY25, Aditya Birla Capital’s Individual First-Year Premium (FYP) rose by 19% YoY to approximately ₹6.4 billion, while the renewal premium increased by 17% YoY to ₹16.8 billion. Gross Written Premium (GWP) in the health insurance segment grew 35% YoY to around ₹10.4 billion, with retail accounting for 51% of the total. The segment continued scaling up focusing on expense management, leading to an improved combined ratio of 112% (from 118% in 1QFY24). Market share among standalone health insurers increased from 11.6% last year to 12.5% in June 2024.
Even though, the quarterly profit margin declined due to stringer RBI regulation and calibration of unsecured loans, the company is now scaling up direct sourcing model it will continue to grow, driven by solid loan book expansion, improved asset quality, and increased market share in varied segments, including health insurance. With a steady focus on scaling, efficient expense management, and leveraging technological leverage the company is well-positioned for continued momentum.
Business and Future Expectations –
Aditya Birla Capital’s ongoing merger process is advancing smoothly, with the company receving initial approvals from BSE and NSE. The following steps include securing a no-objection from RBI and submitting the merger proposal to the NCLT in Ahmedabad, given both companies’ registered offices are in Gujarat. This setup is expected to streamline the process, with completion anticipated by March 2025. Additionally, while the merger structure involves maintaining significant stakes in subsidiaries such as AMC, Health Insurance, and Sun Life Insurance, the team remains engaged with regulatory expectations it is confident in aligning with RBI’s requirements. Regular quarterly updates will give stakeholders with timely insights into the merger’s progression.
The NBFC business is focused on sustaining a 25% growth rate, with a strategically emphasizing on expanding the SME segment. Confident in this approach, they anticipate achieving a 25% CAGR across the portfolio over the next 2-3 years.
The expanding branch network from 191 branches in Q1 FY23 to 415 in Q1 FY25, along with the recently launched ABCD app and MSME-focused platforms, are enhancing accessibility to personal, consumer, and unsecured business loans, offering customers faster and more tailored financial solutions. At the company level, 69% of sourcing is now direct giving it a unique edge to continue the growth trajectory. Aditya Birla Capital launched its B2B platform, Udyog Plus, last year, and it has already attracted nearly 10.5 lakh MSMEs. New customers are steadily joining. While existing customers are transitioning smoothly to this digital platform, taking advantage of its streamlined and seamless user experience.
Recent events –
ESOPs: The Stakeholders Relationship Committee has approved the allotment of 63,244 equity shares (FV ₹10 each) on October 25, 2024, following the exercise of stock options under the ABCL Scheme 2017.
In December 2023, the company sold its 25,65,103 equity shares (50% equity) in Aditya Birla Insurance Brokers Limited to Edme Services Private Limited.
The proposed amalgamation, approved by the Board in March 2024 with no objections from the RBI and stock exchanges, aims to simplify the structure by reducing legal entities, creating a unified, stronger NBFC with direct capital access, enhancing stakeholder value by potentially eliminating the discount, and increasing operational efficiencies and synergies to meet RBI’s Scale Based Regulations, which mandate the listing of ABFL by September 30, 2025. experience.
Strengths –
- Consistently enhancing shareholder value with an improving Book Value per Share for the past 2 years.
- A 32% YoY growth in the Shareholders’ Fund is a strongly indicets of Aditya Birla Capital’s financial health and resilience. This growth means the company has effectively increased its equity base, enhancing its capacity to invest, expand, and withstand market fluctuations.
- Rising FII/FPI shareholding reflects strong institutional confidence in Aditya Birla Capital.
- No promoter pledge is crucial because it shows that the promoters have not borrowed against their shares, reducing financial risk and ensuring stability. This commitment builds trust, as shareholders are less exposed to potential volatility or forced selling of shares in case of market fluctuations.
- MFs increased their shareholding last quarter by 0.15% to 2.47%
CONCLUSION
Aditya Birla Capital Ltd. could be a smart pick for investors looking for a well-rounded financial services company with growth potential. Its strong footing in housing finance, asset management, and insurance, combined with consistent growth across segments, speaks to a balanced and resilient business model. The company’s ability to expand its customer base and enhance its product offerings signals a solid path ahead, positioning Aditya Birla Capital as a promising option for those interested in long-term value.
