Broker’s call: AB Capital (Outperform)

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Target: ₹230

CMP: ₹205.55

We believe Aditya Birla Capital (ABCL) is poised to show strong growth in loans and earnings driven by its lending (NBFC and HFC) and savings (life insurance) businesses in the next several years.

The moats here are: strong parentage and AAA rating providing access to competitive funding; leveraging the ABG group and ABCL ecosystem for cross-selling and upselling in NBFC, insurance, and other segments; diversified product suite and distribution mix avoiding concentration risk in terms of product segment dependency (strong AUM CAGR despite scale down of personal loans).

In our view, the SME segment, in particular, is expected to show a strong over 30 per cent AUM CAGR over the next three years; and strong senior leadership providing confidence on underwriting and asset quality.

We value ABCL at a TP of ₹230 using a sum-of-parts methodology. About 85 per cent of our SOTP is derived from NBFC (1.9x FY25F BV), HFC (1.4x FY25F BV) and life insurance business (FY24FEV+15x FY25F VNB).

We also attribute a 20 per cent holding company discount to listed subsidiaries ABSL AMC and Aditya Birla Money. We factor in no discount for ABFL on account of the merger announced with the listed ABCL.