MOSL: ADITYA BIRLA CAPITAL (Buy)-Loan book growth slows-AMC profitability continues to improve
ADITYA BIRLA CAPITAL: Loan book growth slows; AMC profitability continues to improve
(ABCAP IN, Mkt Cap USD2.6b, CMP INR82, TP INR110, 35% Upside, Buy)
- 1QFY20 consol. PAT grew 27% YoY to INR2.7b, largely driven by strong profit growth across lending (NBFC +20% YoY and HFC 2.9x YoY) and AMC business (+20% YoY). However, Insurance business reported a YoY decline in profits.
- NBFC: Loans declined 3% sequentially to INR501b (YoY growth has slowed to 13%). While the company disbursed INR31b in the quarter, there were repayments of INR42b, leading to AUM decline. The shift in mix towards higher-yielding assets along with marginally lower cost of funds drove NIM to an all-time high of 5.39% (up 50bp QoQ and YoY). GNPAs rose 19bp QoQ (ex-IL&FS) to 1.24%. This was led by the slippage of a mid-corporate account into NPL. The total PCR now stands at 39% (down 310bp QoQ).
- AMC: Total AAUM increased 3% QoQ/1% YoY to INR2.7t in the quarter. Share of equity AAUM continues to rise (up 30bp QoQ/ 90bp YoY) to 34.2%. With some benefits of operating leverage playing through, PAT grew 15% YoY to INR1.2b.
- Others: (1) HFC loan book grew 29% YoY to INR118b. (2) In Life Insurance, net VNB margins improved to -7.8% from -9.4% a year ago. (3) Across tenures, the company reported persistency improvement of 300-600bp. (4) The combined ratio in health insurance in 1QFY20 improved to 146% v/s 190% in the previous year.
- Valuation & view: After five years of strong loan growth, ABCAP would be entering a temporary phase of consolidation given the external environment, and thus, we believe the company's focus will be on retail loans, while corporate lending would be more opportunistic. While the AMC business is witnessing slowing AAUM growth, expense control has led to stronger PAT growth. In the Life Insurance business, the HDFCB tie-up is going strong. Maintain Buy with TP of INR110 (based on SOTP and FY21E).
Aditya Birla Capital Ltd. Aditya Birla Capital Limited, formerly Aditya Birla Financial Services Limited, is an investment company. The Company, through its subsidiaries, provides financing, investment, protection and advisory services to its customers and clients. Its financing services include lending, financing and wealth management solutions, customized solutions in areas of personal and business loans, corporate finance, mortgages, capital market based lending, housing finance solutions such as home loans, home improvement and construction loans. Its investment services include asset management services, investment solutions, portfolio management services, investment advisory services and securities broking. Its protection services include protection solutions, children's future solutions, wealth with protection solutions, health and wellness solution, and health insurance. Its advisory services include insurance broking and risk advisory solutions to companies and individuals.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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