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Target: ₹150
CMP: ₹104.70
We initiate coverage on Aditya Birla Capital (ABC) with a Buy and a SOTP based target price of ₹150 since it offers a good value proposition in the diversified financials space.
Aditya Birla Sun Life AMC could be a key beneficiary of the expanding AMC space as it is the fourth largest player with a strong debt franchise. Focus on cost control and capital management led to attractive returns, with FY22 core RoE/RoA being 39 per cent/20bp.
ABFL has built a sizable franchise with the better yielding retail segment seeing robust growth over FY20-22, driving the consistent increase in risk-adjusted NIM. Led by deeper penetration tier-3/4 cities we expect a healthy AuM growth of 15-18 per cent over FY23-24.
Hence, RoE could enhance over FY21-24E from 9 per cent to 15 per cent. ABHFL has turned the tide with share of the affordable segment rising from 14 per cent to 35 per cent over FY20-22 which led to a NIM enhancing from 3.1 per cent to 3.9 per cent.
This gives ABHFL material headroom for growth and we expect an AuM CAGR of 17.5 per cent over FY22-24.
ABC has built strong buinsesses that could better profitability and return ratios. We maintain the core FY24 EPS multiple for ABSL AMC at 50x while assign a 2.0x/1.2x multiple on FY24 ANW (adjusted net worth) for ABFL/ABHFL.
Risks: ABSL AMC-lower net flows; ABFL/ABHFL-lower growth and collection efficiency.
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