Initiating Coverage | Finance
March 9, 2018
Aditya Birla Capital Ltd
BUY
CMP
`155
Target Price
`218
Aditya Birla Nuvo was holding 100% stake of Aditya Birla Capital Ltd (ABCL).
Investment Period
12 Months
Post AB Nuvo’s merger with Grasim, ABCL was carved out as a separate entity
(listed on 1/9/17). Currently, Grasim holds 57% and other promoter group
Stock Info
owns 17% in the company. ABCL has presence across growing businesses like
Sector
Finance
NBFC, HFC, life insurance, asset management and private equity.
Market Cap (` cr)
33,982
NBFC & HFC to drive consolidated business: Aditya Birla Finance (ABFL) has
Beta
0.9
reported healthy loan CAGR of 60% over FY2012-17. Moreover, despite
52 Week High / Low
264/153.5
aggressive asset quality growth and migration of NPL recognition to 90dpd,
Avg. Daily Volume
10,34,921
ABFL has maintained GNPA at 0.5% in FY2017. The company’s well diversified
Face Value (`)
10
portfolio coupled with geographical expansion will drive growth going ahead.
BSE Sensex
33,450
We have valued NBFC business at 3.5x of FY20E BV and it contributes 61% of
Nifty
10,279
SOTP. Aditya Birla Housing Finance (ABHFL) begun operation in FY2015 and
Reuters Code
ADTB.NS
has quickly grown its advance book at `6,752cr as on 3QFY18.
Bloomberg Code
ABCAP.IN
Financialisation of savings to benefit AMC & Life Insurance business:
Financialisation of savings and low penetration would continue to support AMC
Shareholding Pattern (%)
& Life insurance business. Aditya Birla Sun Life Mutual Fund (ABSLMF) is the 4th
Promoters
72.8
largest AMC with `2.41tn AUM, of which 28% is into equities. AMC business is
MF / Banks / Indian Fls
7.1
asset light in nature, hence can generate hefty free cash flow, which can be
FII / NRIs / OCBs
5.9
deployed in growing business such as NBFC & HFC. We have valued AMC
Indian Public / Others
14.3
business at 7.5% of AUM and it contributes 19% of SOTP. Aditya Birla Sun Life
Insurance (ABSLI) is a JV between ABCL and Sun Life Insurance (Canada). ABSLI
was primarily focused on ULIP policies, with almost 100% of new premiums
Abs.(%)
3m 1yr 3yr
sourced from ULIP policies in FY10. Post ULIP regulation in 2010, company
Sensex
0.3
14.6
12.2
changed focus and currently ULIP contributes
35% of product mix.
ABCL
(18.5)
NA NA
Bancassurance tie-up with HDFC, DBS and LVB would help to grow business.
Price chart
Outlook & Valuation: We believe broad based and integrated financial
250
offerings would enable ABCL to take benefit of financialisation of savings. We
expect ABCL’s PAT to grow at CAGR of 49% over FY2017-20E, largely driven by
200
Lending segment and AMC. We initiate coverage on Aditya Birla Capital Ltd
150
and recommend a BUY on the stock with SOTP based target price of `218.
100
Key Financials
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Revenue
928
1,064
1,653
2,282
3,128
Source: Company, Angel Research
% chg
57%
15%
55%
38%
37%
PBT
869
1,065
1,703
2,337
3,183
PAT
380
529
973
1,313
1,761
% chg
39
84
35
34
EPS
2
2
4
6
8
Jaikishan Parmar
ROE
9
8
13
15
17
022 - 3935 7800 Ext: 6810
P/B
8
5
4
4
3
P/E
89
64
35
26
19
Source: Source: Company, Angel Research; Note: CMP as of March 8, 2018
Please refer to important disclosures at the end of this report
1
Aditya Birla Capital Ltd | Initiating Coverage
NBFC & HFC (Financing) to drive consolidated business
NBFC: Aditya Birla Finance Limited
Aditya Birla Finance Limited is among the leading well-diversified financial services
company in India offering end-to-end lending, financing and wealth management
solutions to a diversified range of customers across the country. ABFL is registered
with RBI as a systemically important non-deposit accepting non-banking finance
company and ranks among the top five largest private diversified NBFCs in India
based on AUM as of March 31, 2017 (source: CRISIL).
ABCL has AA+ (with stable outlook) long term credit rating and short term credit
rating of A1+ by ICRA. This rating is reflection of the company’s strong risk
management systems and processes, its robust profitability indicators (ROA/ROE of
1.90%/14.3% for Q3FY18), pristine asset quality indicators (Gross and net NPAs
of 0.70% and 0.47% respectively as on 3QFY18), diversified funding profile and
adequate capitalisation for the current scale of operations.
Healthy loan book growth: Aditya Birla Finance (ABFL) has reported healthy loan
CAGR of 60% over FY2012-17. Moreover, despite aggressive asset quality growth
and migration of NPL recognition to 90dpd, ABFL has maintained GNPA at 0.5%
in FY2017. The company’s well diversified portfolio coupled with geographical
expansion will drive growth going ahead. We have valued NBFC business at 3.5x
of FY20E BV and it contributes 61% of SOTP. Aditya Birla Housing Finance (ABHFL)
begun operation in FY2015 and has quickly grown its advance book at `6,752cr
as on 3QFY18.
Exhibit 1: Advance has grown at CAGR of 46% over last 4 years
80,000
73,263
70,000
57,688
60,000
50,000
44,375
40,000
33,874
30,000
25,293
17,566
20,000
11,557
7,474
10,000
-
FY13
FY14
FY15
FY16
FY17
FY18E FY19E FY20E
Source: Company, Angel Research
Well diversified lending book: ABFL has commenced its financing business from
capital market related lending, which accounted for 34% of the loan book in
FY2013, accounting for only 14% of the loan book in FY17. ABFL has successfully
diversified across segments and has scaled up its portfolio significantly in the past
three years, through both, new product offerings and geographical expansion.
ABFL has one the best diversified loan book, on broader classification; Large
Corporates contribute 36%, SME 26%, Mid Corporates 15%, retail 10% and others
13%.
March 09, 2018
2
Aditya Birla Capital Ltd | Initiating Coverage
Strong risk management framework; best in class asset quality: ABFL has
separate sourcing and underwriting teams for each business segments. In the
case when the company is planning to venture into newer products, it hires
experienced top level management to set up the segment. Additionally, it only
finances to entities with strong promoter backing and only operational long
gestation projets. Stringent practice of monitoring and sourcing asset has led
to maintain best in class asset quality. The company’s reported GNPA and
NPA stood at 0.70% and 0.47% respectively as on 3QFY18. The company has
adopted 90+dpd for NPA recognition from1QFY18.
Exhibit 2: Asset quality trend
1.0
68.0
GNPA
NPA
Provision
65.1
0.9
66.0
64.4
0.8
64.0
0.7
62.0
0.6
60.0
58.2
58.3
0.5
57.5
58.0
0.4
55.3
56.0
0.3
54.0
0.2
0.1
52.0
0.9
0.3
0.60.2
0.50.2
0.60.2
0.6
0.3
0.80.3
0.0
50.0
FY15
FY16
FY17
FY18E
FY19E
FY20E
Source: Company, Angel Research
Improving return ratio: ABFL has reported ROE of 13.5% in FY2017, which is
184bps improvement from FY2014. We expect it to report further
improvement in return ratios led by controlling cost-to-income ratio. Further,
investment in digital lending would lower incremental opex.
Exhibit 3: Trend in return ratios (%)
18.0
16.4
ROE ROA
15.2
16.0
13.9
13.5
14.0
13.0
12.4
11.6
12.0
10.0
8.0
6.0
4.0
1.6
1.8
1.8
1.9
1.9
1.9
1.9
2.0
-
FY14
FY15
FY16
FY17
FY18E
FY19E
FY20E
Source: Company, Angel Research
March 09, 2018
3
Aditya Birla Capital Ltd | Initiating Coverage
Income Statement
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Interest Income
2,344
3,181
4,186
5,425
6,940
Interest Exp
1,544
2,077
2,730
3,533
4,538
Net Interest Income
800
1,104
1,456
1,891
2,402
- YoY Growth (%)
33
38
32
30
27
Other Income
143
245
326
423
541
Total Income
943
1,350
1,783
2,314
2,943
Cost/Income (%)
24
31
30
29
28
Operating Exp
230
419
543
670
836
Provision
86
99
143
211
304
PBT
626
832
1,097
1,433
1,803
TAX
218
247
329
430
541
PAT
409
585
768
1,003
1,262
Balance sheet
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Shareholder Fund
3,696
4,991
6,082
7,085
8,347
Borrowing
21,409
28,913
37,587
48,487
62,064
- Growth (%)
46
35
30
29
28
Other Liabilities
1,118
1,515
2,433
4,070
5,072
Total Liability
26,223
35,420
46,102
59,643
75,484
Fixed Asset
21
57
74
96
122
Advance
25,293
33,874
44,375
57,688
73,263
- Growth (%)
44
34
31
30
27
Other Asset
909
1,489
1,653
1,859
2,098
Total Asset
26,223
35,420
46,102
59,643
75,484
DuPont Analysis
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Net Interest Income
3.6
3.6
3.6
3.6
3.6
(-) Prov. Exp.
0.4
0.3
0.4
0.4
0.5
Adj NII
3.2
3.3
3.2
3.2
3.1
Other Income
0.6
0.8
0.8
0.8
0.8
Op. Income
3.9
4.1
4.0
4.0
3.9
Opex
1.0
1.4
1.3
1.3
1.2
PBT
2.8
2.7
2.7
2.7
2.7
Taxes
1.0
0.8
0.8
0.8
0.8
ROA
1.8
1.9
1.9
1.9
1.9
Leverage
7.0
7.1
7.4
8.0
8.8
ROE
13.0
13.5
13.9
15.2
16.4
March 09, 2018
4
Aditya Birla Capital Ltd | Initiating Coverage
Housing Finance - Aditya Birla Housing Finance Limited
ABHFL begun operation in FY2015 and has grown its book size to `6,752cr as on
Q3FY18. It has disbursed `1,306cr, which is highest ever quarterly disbursement.
Its loan book is diversified, with 59% as housing loans, 12% as construction
finance loans and 30% as LAP/LRD (Q3FY18). Management, since beginning has
focused on multi distribution channels for loan book growth. Presently, AHFL
operates 44 branches with 2,300+ channel partners. Management is targeting to
add 6 new branches to reach to 50 branches by March FY2018.
Reported GNPA and NPA stood at 0.33% and 0.26% respectively as on 3QFY18
as compared with 0.34% and 0.28% respectively as on FY2017.
We expect loan book to continue to growth at healthy rate owing to government
flagship schemes, PMAY, Housing for All, Smart Cities, etc.
Income Statement
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Interest Income
89
298
560
939
1,429
Interest Exp
60
211
402
655
976
Net Interest Income
30
86
158
283
452
- YoY Growth (%)
191%
83%
79%
60%
Other Income
12
17
33
56
86
Total Income
42
103
191
339
539
Cost/Income (%)
149
102
78
62
43
Operating Exp
62
105
149
212
232
Provision
10
14
27
51
86
PBT
(30)
(15)
15
77
220
TAX
-
-
4
23
66
PAT
(30 )
(15 )
11
54
154
Balance Sheet
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Shareholder Fund
205
367
675
729
883
Borrowing
1,505
3,587
6,456
10,136
14,901
- Growth (%)
-
138
80
57
47
Other Liabilities
287
230
699
1,662
3,139
Total Liability
1,997
4,185
7,830
12,528
18,923
Fixed Asset
8
10
19
29
41
Advance
1,979
4,152
7,764
12,422
18,633
- Growth (%)
-
110
87
60
50
Other Asset
10
23
48
77
249
Total Asset
1,997
4,185
7,830
12,528
18,923
March 09, 2018
5
Aditya Birla Capital Ltd | Initiating Coverage
AMC - Aditya Birla Sun Life AMC Limited
Aditya Birla Sun Life Mutual Fund (ABSLMF) is the 4th largest AMC with `2.43tn
AUM, of which 28% is into equities. It has recorded average AUM CAGR of 24%
over FY2013-17 owing to regular fund performance, rising distribution reach and
presence across multiple products. Post demonetization and subdued performance
by other asset classes, MF industry has witnessed huge new money inflow.
AMC business is asset light in nature, and hence it would generate hefty free cash
flow, which can be deployed in growing businesses such as NBFC and HFC. The
AMC segment has reported average ROE of 25% over the last 5 years.
ABSLMF has reported revenue/EBITDA/PAT CAGR of 24%/29%/26%, respectively
over FY2014-17. We expect revenue/EBITDA/PAT to grow at CAGR of
22%/31%/31%, respectively, owing to operating leverage.
Income Statement
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Revenues from Operations
776
1,013
1,308
1,700
2,210
Employee Expenses
174
198
262
323
398
Other Expenses
280
472
505
655
811
Total Expenses
453
669
767
978
1,209
EBITDA
322
344
541
722
1,001
EBITDA (%)
42
34
41
42
45
Depreciation
9
8
8
9
10
Interest Expenses
0
0
0
0
0
Other Income
0
1
2
2
2
PBT
314
337
535
715
993
Prov. for Taxation
111
114
182
243
338
PAT
203
223
353
472
655
Balance Sheet
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Share Capital
18
18
18
18
18
Reserve & Surplus
761
924
1,277
1,749
2,404
Net Worth
779
942
1,295
1,767
2,422
Minority Interest
-
-
-
-
-
Other Long Term Liabilities
46
53
68
88
115
Total Liabilities
825
994
1,363
1,855
2,537
Total Fixed Assets
14
18
58
77
99
Investments
664
901
901
901
901
Cash & Cash equivalents
26
26
377
857
1,521
Other Current Assets
239
255
294
367
466
Current Liability
118
205
266
346
450
Total Assets
825
994
1,363
1,855
2,537
Growth YoY
20%
37%
36%
37%
March 09, 2018
6
Aditya Birla Capital Ltd | Initiating Coverage
Insurance - Aditya Birla Sun Life Insurance Co Ltd (ABSLI)
Aditya Birla Sun Life Insurance Company Limited, is one of the leading private
sector life insurance companies in India in terms of market share (7.1%) of first
year premium (FYP), with single premium considered at 10% (Source: Life
Insurance Council).
ABSLI is a JV between ABCL and Sun Life Insurance (Canada). ABSLI was primarily
focused on ULIP policies, with almost 100% of new premiums sourced from ULIP
policies in FY10. Post IRDA’s ULIP regulation in 2010, company changed focus
and incremental efforts were made to improve the product mix. This resulted into
decline in ULIP contribution to 35%.
Exhibit 4: Individual Life (Product Mix)
Exhibit 5: Individual New Business Mix
5%
ULIP
14%
Agency
35%
PAR
32%
19%
Third party
Non PAR
67%
Term
Direct Marketing
28%
Source: Company, Angel Research
Source: Company, Angel Research
Bancassurance and operational efficiency to drive future growth
ABSLI has tied-up with Karur Vysya Bank, DCB Bank and Deutsche Bank.
Additionally, in 3QFY18 it also tied-up with HDFC Bank under the open
architecture model. We expect ABSLI to reap the full benefits of the recent deal
from the next fiscal onwards following integration and training of staff.
One of the important ratios in insurance industry is persistency ratio, which is
improving over a period of time. Persistency ratio shows what proportion of
policyholders stick with their products and keep funding it, and for how long.
Exhibit 6: 13th Month Persistency (%)
Exhibit 7: VNB margins (%)
71.5%
72.1%
18%
17.0%
16.6%
16.2%
70%
64.7%
16%
15.2%
62.2%
60.0%
14.1%
60%
14%
50%
12%
10%
40%
8%
30%
6%
20%
4%
FY14
FY15
FY16
FY17
Q3FY18
FY13
FY14
FY15
FY16
FY17
Source: Company, Angel Research
Source: Company, Angel Research
March 09, 2018
7
Aditya Birla Capital Ltd | Initiating Coverage
New ventures are at a very nascent stage
Aditya Birla Health Insurance
Aditya Birla Health Insurance Co. Limited (ABHICL) was incorporated in 2015 as a
joint venture between MMI Strategic Investments Private Limited, MMI Holdings
Limited, ABNL and ABCL. ABHICL is engaged in the business of health insurance.
The current product portfolio comprises Retail Activ Health, Group Activ Health and
Group Activ Secure (Fixed Benefit). ABHICL’s multi-channel distribution strategy
drives scale and comprises of agency, bancassurance, brokers, digital and online
tele-assisted channels and all such channels are active. As on Q4FY17, agency roll
out was achieved in seven cities and nine branches with around 1,800 agents and
ABHICL has partnered with four banks including HDFC Bank. ABHICL also has
over 50 brokers.
Aditya Birla PE Advisors Ltd
Aditya Birla PE Advisors is a wholly owned subsidiary of ABCL. It provides financial
advisory and management services with focus on managing venture capital funds
and alternate investment funds. ABPE is presently appointed as an investment
manager to two SEBI registered domestic venture capital funds, namely, Aditya
Birla Private Equity - Fund I and Aditya Birla Private Equity - Sunrise Fund, where it
currently manages a gross AUM of Rs. 11.79 billion under these two funds
Aditya Birla My Universe Ltd
Aditya Birla MyUniverse Limited (ABMUL) was incorporated in 2008 and ventured
into the personal finance management space in 2012 through its online money
account aggregation of all financial services products including bank accounts,
credit cards, loans, mutual funds, demat accounts, insurance, incomes and
expenses in a highly secure environment. MyUniverse provides the customers with
a single window view of their personal financial universe thereby helping them in
evaluation of their net worth.
MyUniverse, in addition to aggregation, analyses and presents data in an
intelligible format to the customers and also provides financial transaction
capabilities. MyUniverse works with over 45 financial institutions and offers their
services and products.
Aditya Birla Money Ltd
Aditya Birla Money Limited (ABML) is a listed company. Its shares are listed on the
BSE and NSE since 2008. ABML is currently engaged in the business of securities
broking and is registered as a stock broker with SEBI. It is a member of BSE and
NSE and offers equity and derivatives trading through NSE and BSE. It holds
license from SEBI and offers portfolio management services. It has a combined
pan India distribution network of over 40 branches, and 737 franchisee offices. It
also has a robust online and offline model with a strong technological backbone
to support a large registered customer base of over 300,000 customers.
March 09, 2018
8
Aditya Birla Capital Ltd | Initiating Coverage
Aditya Birla Insurance Brokers Ltd
Aditya Birla Insurance Brokers Limited (ABIBL) is one of India’s leading
composite general insurance brokers, licensed by the Insurance Regulatory
and Development Authority of India (IRDAI). The company specializes in
providing general insurance broking and risk management solutions to
companies and individuals. It also offers Reinsurance solutions to insurance
companies and has developed strong relations with Indian as well as global
insurers and reinsurers.
Key risks
Financing business: NBFC has maintained good asset quality. Higher share of
corporate and SME could impact profitability, in case of subdued economic
growth or down turn.
AMC: Any slowdown in Indian market would adversely impact financials of the
AMC business.
Insurance: If the recent tie-up with HDFC Bank does not pick up then it would
impact embedded value growth assumption.
March 09, 2018
9
Aditya Birla Capital Ltd | Initiating Coverage
Outlook & valuation
We believe broad based and integrated financial offering enable ABCL to take
benefit of finacialisation of savings. We expect ABCL PAT to grow at CAGR of 49%
over FY17-FY20E, largely driven by Lending segment and AMC. We recommend a
buy rating on the stock and an SOTP-based target price of `218.
Exhibit 8: SOTP valuation summary
Valuation
Particulars
Stake
Value/share (`)
Methodology
NBFC
100%
3.5x FY20E PBV
133
HFC
100%
4x FY20E PBV
16
AMC
51%
7.5% of Q3FY18 AUM
42
Life Insurance
51%
3x Q2FY18 EV
26
ABML
74%
CMP
1
Fair value per share
218
Source: Company, Angel Research
Consolidated Profit & Loss
Y/E March (` cr)
FY16
FY17
FY18E
FY19E
FY20E
Segment PBT
NBFC
626
832
1,097
1,433
1,803
Life Insurance
-
-
150
180
216
Asset Management
314
337
535
715
993
HFC
-30
-15
15
77
220
Other Financial Services
9
-45
-145
-123
-105
Total PBT
928
1,064
1,653
2,282
3,128
- YoY Growth (%)
15
55
38
37
Consolidated Adj
-50
-44
50
55
55
Consolidated PBT
869
1,065
1,703
2,337
3,183
Taxes
345
375
579
795
1,082
Tax Rate (%)
40
35
34
34
34
Consolidated PAT
524
690
1,124
1,542
2,101
Minority Interest
144
161
151
229
340
Consolidated PAT Post MI
380
529
973
1,313
1,761
- YoY Growth (%)
39
84
35
34
March 09, 2018
10
Aditya Birla Capital Ltd | Initiating Coverage
Research Team Tel: 022 - 39357800
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Disclosure of Interest Statement
Aditya Birla Capital Ltd
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
March 09, 2018
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