MOSL: ADITYA BIRLA CAPITAL (INITIATING COVERAGE)-Perfect blend of growth and quality-A large diversified conglomerate in the making
​ADITYA BIRLA CAPITAL (INITIATING COVERAGE): Perfect blend of growth and quality; A large diversified conglomerate in the making
(ABCAP IN, Mkt Cap USD6.4b, INR190, TP INR231, 22% Upside, Buy)
- Aditya Birla Capital (ABCL) is one of the most diversified financial services entities in India, operating under a single brand, with a presence in non-bank financing, housing finance, asset management, insurance and advisory businesses. In its major businesses, it is among the top-5 private players in terms of market share.
- ABCL was a 100% subsidiary of erst-while Aditya Birla Nuvo. Post AB Nuvo’s merger with Grasim, ABCL was carved out as a separate entity. Grasim, the flagship company of the Aditya Birla group, owns ~57% and other promoter group entities own ~17% in ABCL. The management team is led by Mr Ajay Srinivasan, who has rich experience of over three decades, of which a decade has been within the group. With a strong management team at the helm, we expect ABCL to emerge as a strong play on financialization of savings and low penetration across financial services businesses.
- We use SOTP to value the company. We value the NBFC at 3.2x BV (~30% AUM CAGR, with PAT CAGR of ~33%, RoE of ~15%), HFC at 2x BV (loan book of INR232b v/s INR48 in 1HFY18; RoA of 1.1% v/s 0.5% in FY18 - in investment phase), AMC at 30x earnings (AUM CAGR of ~27%; RoE of 30%+; implied 4.5% of FY20 AUM) and Insurance at 2.2x EV (10% premium to last deal valuation - based on IEV reporting).
- The lending business contributes 70% of the SOTP valuation (in line with the share in net worth), followed by the AMC business (>18%) and the insurance business (~10%). The company has been aggressively seeding investments in businesses like insurance broking and investment advisory. However, considering their nascent stage, we have not assigned any value to them. The implied valuation multiples work out to 3.5x FY20E consolidated BV and 30x FY20E consolidated EPS.
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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