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Target: ₹200
CMP: ₹156.20
We initiate coverage on Aditya Birla Capital (ABCAP) with a Buy recommendation and Mar-24 TP of ₹200, based on SOTP-based valuation methodology.
Our positive view on the stock is underpinned by three factors: The lending business (NBFC and HFC) has hit upon the right business model (categories, acquisition channel and unit economics), with a right to win. This will manifest into an impressive 26 per cent loan-book CAGR, supporting a similarly sturdy 31 per cent profit CAGR through to FY25;
The Life Insurance business has withstood regulatory shocks and now owns a diversified distribution channel, which will focus on driving growth beyond urban centers. We estimate 20 per cent VNB margin, with industry-leading growth. Likewise, the company’s AMC business maintains dominance (is in the top-tier) and is favored by the notably cyclical movement in market share. Health Insurance remains in a growth phase; and The most vital trigger, in our view, remains the dynamism of the new management, which indeed intends to capitalise on its low cost liability edge and its right to win, together with shedding its ultra-conservatism on growth (not risk). Despite the higher growth in insurance businesses putting some strain on reported profit, we see consolidated PAT clocking about 30 per cent CAGR over FY22-25 to reach ₹3,300 crore.
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