RESULT UPDATE
ADITYA BIRLA CAPITAL Systemic concerns posing challenges
India Equity Research| Banking and Financial Services
Aditya Birla Capital (ABCL) reported soft (in line) Q3FY20 profitability EDELWEISS 4D RATINGS marked COMPANYNAME by muted growth and rise in credit cost. As anticipated, growth Absolute Rating BUY slackened in lending business, but sustained focus on granularity and Rating Relative to Sector Outperform profitability (broadly steady NIM) cushioned revenue traction—sound Risk Rating Relative to Sector High strategy amidst current challenges. That said, credit cost inched up, a Sector Relative to Market Overweight reflection of systemic challenges. Meanwhile, performance across protection (improvement in persistency across cohorts, net VNB crossed 10%) and investing (AMC profitability sustained at 28bps despite MARKET DATA (R: ADTB BO, B: ABCAP IN) regulations) businesses was steady. Concerns on systemic risk to CMP : INR 92 construction financing, LAP and structured credit portend challenges, but Target Price : INR 120 ABCL’s performance indicates it is relatively better positioned to navigate 52-week range (INR) : 115 / 76 Share in issue (mn) : 2,313.2 them given: a) strong parentage; b) robust risk framework; and c) <1% M cap (INR bn/USD mn) : 213 / 3,069 exposure to group entities. Maintain ‘BUY’ with TP of INR120. Avg. Daily Vol.BSE/NSE(‘000) : 2,927.0 Aditya Birla Finance (ABFL): PAT of ~INR2bn was impacted by below trend loan
growth (down 3% YoY) and higher credit cost. The focus is on retail and SME SHARE HOLDING PATTERN (%)
segments (30%/17% YoY growth) and is looking to expand footprint by adding 150- Current Q2FY20 Q1FY20 200 branches over the next one-two years. GNPL (excluding IL&FS) rose to 2.26% Promoters * 73.5 72.7 72.7
(1.39% in Q2FY20) largely on three accounts (real estate NBFC, power equipment MF's, FI's & BK’s 8.7 8.5 8.3 manufacturer, textile player). We will keep tabs on asset quality given exposure to FII's 2.4 2.8 2.9 real estate & LAS, though management is confident of no such structural concerns. Others 15.3 16.0 16.1 * Promoters pledged shares : NIL Aditya Birla Housing (ABHFL): ABHFL also posted below trend loan growth, up sub (% of share in issue) 13% YoY, with INR122bn AUM. Home loans now constitute 54%, additionally growth
in affordable housing sustained (now 17% of book). Asset quality rose with stage 3 at PRICE PERFORMANCE (%) 1.04% (0.85% in Q2FY20); no stage-3 exposure in construction finance. EW Banks and Stock Nifty Financial Aditya Birla SunLife Insurance: Growth momentum sustained (GWP growth of 20% Services Index with renewal growth of >30%). Other core metrics: a) persistency (13th month at 1 month 0.5 (1.8) (4.9) 80%); and b) protection mix at 6% (aiding margin) sustained improvement. 3 months 9.6 1.6 3.6 Importantly, the company reported net VNB of >10%; sustenance is key. 12 months 1.7 13.0 16.0
Aditya Birla AMC: Growth was softer given slower domestic AUM growth and lower
offshore/alternate AUM (down >5% YoY). Profitability was maintained at 28bps.
Outlook and valuation: Systemic challenges; maintain ‘BUY’
Though ABCL’s 9mFY20 performance reflects systemic challenges, it was better than peers and sustained focus on quality over growth is commendable. Headwinds in a few Kunal Shah segments, though managed well, warrant caution. We maintain ‘BUY/SO’. +91 22 4040 7579 [email protected] SOTP
Business Method Value (INR mn) Value per share Prakhar Agarwal ABFL P/BV 1,07,804 49 +91 22 6620 3076 [email protected] ABHFL P/BV 33,063 15 BSLI AV 46,611 21 Prashant Ghuge ABAMC (%) of AUM 75,809 34 +91 22 4063 5517 [email protected] Others 1,403 1
Net value 120 February 3, 2020
Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL
Banking and Financial Services
Aditya Birla Finance (ABFL): Growth continues to moderate ABFL reported PAT of INR2bn (down 4% YoY), impacted by softer growth momentum and higher credit cost.
Moderating trend in loan growth sustained (down 3% YoY; fourth consecutive quarter of declining growth). This was largely to do with run-down in corporate segment, while SME plus retail (up >30% YoY) plus HNI growth was better leading to them constituting 51% of overall portfolio.
Going forward, focus remains on retailisation (reflected in average ticket size coming off) and run-down in corporate segment is by and large done. The company is also planning to expand footprint by adding 150-200 branches over the next 18-24 months.
Additionally, focus on maintaining profitability sustained, reflected in broadly steady NIM (including fees) at 5.24% (5.28% in Q1FY20), which cushioned revenue momentum.
Gross stage-3 (excluding IL&FS) rose to 2.26% (1.39% in previous quarter) due to slippage of three corporate accounts—real estate NBFC, power equipment manufacturer and textile/plastic player. It has made INR800mn provision on these accounts (20% coverage) as these assets are well collateralised, leading to higher credit cost. Going forward: a) further haircuts on exposure to IL&S (of overall INR3.88bn exposure, it has classified INR2.2bn to four IL&FS entities as stage 3 and made INR620mn provisions against it till date); and b) systemic concerns around construction finance, LAP and LAS book warrant close monitoring. However, management is confident of no signs of concern in LAS and LAP and even in construction financing, and gave disclosures stating: a) no stage-3 exposure in Top 20 exposures; b) exposure to Aditya Birla Group companies < 1% (including towards telecom) of overall loan book; and c) no stage-3 exposure in construction finance, which lends some comfort.
Table 1: Aditya Birla Finance – Key metrics Q3FY20 Q3FY19 YoY Q2FY20 QoQ PBT 2,720 3,230 (15.8) 3,170 (14.2) Loan book 479,330 493,010 (2.8) 483,680 (0.9) Networth 80,890 71,150 13.7 78,900 2.5 GNPLs (%) 2.7 1.2 1.9 NNPLs (%) 2.0 0.6 1.2
Table 2: Growth driven by retail/SME/HNI segment – Proportion rising to 51% levels (%) Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Retail 12.0 13.0 13.0 15.0 16.0 18.0 SME 27.0 26.0 27.0 27.0 28.0 27.0 Large & Mid Corporate 49.0 49.0 47.0 47.0 46.0 45.0 Promoter & Ultra - HNI 12.0 11.0 13.0 11.0 9.0 10.0 Others (Incl. Investment/DCM) - 1.0 - - 1.0 - Source: Company
Aditya Birla Housing Finance (ABHFL): Holding on ABHFL posted below–trend growth (up sub-13% versus 20% plus run-rate earlier) largely due to run-down in construction finance and softer home loan (excluding affordable housing) growth even as affordable housing and LAP were steady. Home
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loans constitute 54% and additionally affordable housing logged notable growth and now forms 17% of book—a trend management expects to sustain.
ABHFL has been clocking steady growth, but headwinds and the challenging environment keep us wary in a few segments—construction finance (5% of book) and LAP (24% of book) of portfolio.
There is no stage-3 exposure in construction finance book and no NCR exposure other than Noida.
Overall, the company reported PBT of INR350mn impacted by softer revenue traction and still remains a drag on overall RoE (albeit reducing) given ABHFL is in investment phase.
Table 3: Aditya Birla Housing Finance: Key metrics Q3FY20 Q3FY19 YoY Q2FY20 QoQ PBT 350 320 9.4 360 (2.8) Loan book 121,900 108,280 12.6 120,790 0.9 Networth 12,700 11,570 9.8 12,430 2.2 GNPLs (%) 1.0 0.7 0.9 NNPLs (%) 0.7 0.4 0.6
Table 4: Higher focus in affordable housing segment (%) Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Home Loan 58.0 59.0 57.0 56.0 55.0 54.0 Loan against Property 25.0 23.0 23.0 23.0 24.0 24.0 Construction Finance 8.0 7.0 7.0 7.0 6.0 5.0 Affordable Housing 9.0 11.0 13.0 14.0 16.0 17.0 Source: Company
Chart 1: Headwinds in real estate, LAS & structured finance demand caution Home Loans Unsecured and 10.9% Digital Construction 7.9% Finance LAS Project Loan 6.0% 5.7% 12.9% LRD 5.0% Affordable 3.4% Treasury LAP 3.1% 15.4% Structured Finance 2.9% Supply Chain TL/WCDL Broker Funding Finance 24.5% 0.2% 1.9% Source: Company
Aditya Birla AMC: Overall growth soft; outlook cautious Growth was soft as offshore/alternate AUM declined (down >5% YoY) and domestic AUM grew 3% YoY. Within domestic AUM, there was softer growth in fixed income
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AUM (up mere 1.3% YoY), while equity grew 6% YoY. Going forward, we will monitor the challenging operating environment and the impact of recent regulations.
The strategy remains to increase the proportion of retail and equity going forward.
It has taken various digital initiatives for improving distribution and customer experience leading to ~75% transaction being digital.
Currently, there are no plans to demerge this business.
Table 5: Growth momentum softer (INR mn) Q3FY20 Q3FY19 YoY Q2FY20 QoQ Domestic AAum 2,499,260 2,423,440 3.1 2,538,280 (1.5) Domestic Equity AAum 922,380 867,480 6.3 885,390 4.2 Total Income 3,190 3,380 (5.6) 3,230 (1.2) Costs 1,450 1,730 (16.2) 1,480 (2.0) Earnings before tax 1,730 1,660 4.2 1,750 (1.1) SIP book size Mkt. Share (%) 10.4 11.7 11.0 Source: Company
Aditya Birla SunLife Insurance: Net VNB improves; sustenance key The quarter marked steady growth momentum (GWP grew 20%) following 30% plus spurt in renewal premium. Going forward, focus will be on scaling up bancassurance via HDFC Bank, which should help the life insurance business maintain momentum.
Gross VNB margin (for 9mFY20) came in at 35.3% (34.1% in 9mFY19). Moreover, the company reported net VNB margin (for 9mFY20) of 4.4% (versus 1% in 9mFY19), following higher protection mix and improving productivity. The company expects to close FY20 with early teens net VNB margin. We believe the improvement is encouraging, but a sustained improvement in post-cost NBM is critical for improved profitability.
Table 6: Strong growth in premiums, sustainability key (INR mn) Q3FY20 Q3FY19 YoY Q2FY20 QoQ Individual First year Premium 5,160 4,800 7.5 4,230 22.0 Group First year Premium 5,790 5,300 9.2 4,910 17.9 Renewal Premium 11,330 8,510 33.1 9,110 24.4 Total Gross Premium 22,280 18,600 19.8 18,250 22.1 Source: Company
Table 7: Valuations AUM/earnings/b Per share Dec 2020E (INR mn) Valuation method Multiple (x times) Business valuation Stake Value ook/AV (INR) ABFL Book Value 1,03,658 1.0 1,07,804 100% 1,07,804 49 ABHFL Book Value 21,469 1.5 33,063 100% 33,063 15 Birla Sun Life Insurance Appraisal Value 59,347 1.5 91,394 51% 46,611 21 Birla Sun Life AMC Total AUM (%) 29,49,301 5.0 1,48,645 51% 75,809 34 Aditya Birla Money Mcap (Listed) 1,870 75% 1,403 1 Overall Value 120 Source: Edelweiss research
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Financials snapshot Q3FY20 Q3FY19 QoQ (%) Q2FY20 YoY (%) FY19 FY20E FY21E Net revenue 31,867 26,837 18.7 28,139 13.2 132,361 157,296 180,750 Opex 26,005 20,599 26.2 22,108 17.6 114,351 137,494 159,773 Employee cost 1,834 1,945 (5.7) 1,883 (2.6) 18,034 22,070 27,046 Other cost 1,268 1,294 (2.0) 1,184 7.0 96,318 115,424 132,727 PBT 2,760 2,999 (8.0) 2,964 (6.9) 18,010 19,803 20,977 Tax 1,011 1,465 (31.0) 1,289 (21.5) 6,303 4,951 5,244 PAT (excl. non-controlling int.) 1,182 1,039 13.7 1,048 12.7 11,706 14,852 15,733
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Q3FY20 earnings concall highlights With respect to growth/strategy/outlook
Given the challenging operating environment and weak credit demand, the overall growth in lending business (NBFC+HFC) was muted. However, the focus segments of retail and SME (except some stressed sub-segments) have grown quite well.
Going forward, the growth in lending business would be led by retail and SME which would be driven by increasing number of branches.
The run-down in corporate book is by and large done – the book would remain flat or grow marginally going forward.
The company continues with its efforts on retailisation and granularisation of the book to reduce risk which can be seen from declining average ticket sizes across products.
On a consolidated level, the profitability is aided by contribution from various businesses (losses from other business halved YoY) and lower interest cost (halved YoY) due to reduced leverage (capital raised at holdco level).
The company has raised capital of INR21bn of which INR11bn has already flowed in and used to repay debt. Another INR10bn is pending for approval post which will be used to repay remaining debt (INR4.5bn) and rest would be infused in various businesses (NBFC, HFC, ARC, Health Insurance).
Aditya Birla Finance (NBFC)
Within the lending businesses (NBFC and HFC), the focus remains on retailisation.
The focused segments of retail and SME are doing well with 30% YoY and 17% YoY growth respectively.
The company would be increasing its footprint by adding 150-200 branches over next 18-24 months.
Due to focus on higher yielding products, the NIMs have expanded by 41bps YoY to 5.24%.
SME and retail book –
SME – ATS is now at ~INR49mn (down 27% YoY) with focus now on TL/WCDL segment.
LAP & LRD – ATS is INR200mn (down 26% YoY) with LTV of ~50% and the approach remains selective.
Retail – ATS is INR0.5mn (down 27% YoY) and have identified new segments for growth – travel, healthcare, and education
LAS – Overall book contracted by ~36% YoY with no stage-3 exposure.
Corporate book -
Top 20 customers in large and mid corporate segment contribute ~10% of overall loan book.
There is no stage-3 exposure in these top 20 accounts.
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Structured Finance book was run-down by ~INR17bn over last one year (down 50% YoY).
Within project loan and construction finance book, there are no stage-3 exposures.
Within construction finance – there is no exposure to luxury residential projects.
Aditya Birla Housing Finance (HFC)
The housing book is ~95% retail (home loans and LAP) and ~5% is construction finance.
The affordable housing business is doing well and the book stands at INR21bn (1.8x YoY).
There is no stage 3 exposure in construction finance book (no NCR exposure other than Noida).
Average ticket size – affordable housing INR1.4mn and retail LAP INR5.6mn.
28% of affordable home loan portfolio backed by IMGC and 45% eligible for PMAY subsidy.
The company plans to double presence (mainly in non-metros) over 18-24 months.
Aditya Birla Sun Life AMC
The strategy remains to increase proportion of retail and equity going forward.
Market share – domestic AAUM market share at 9.93% with consistent increase in SIP share of Domestic Equity AAUM (37% now from 25% in Q3FY18).
Have taken various digital initiatives for improving distribution and customer experience leading to ~75% transaction being digital.
It has added 53 locations to reach 310 with >75% in B-30 cities and similar addition expected in the coming year.
Currently, there are no plans to demerge the business.
Aditya Birla Sun Life Insurance
Gained market share (APE growth of 20% compared to industry growth (ex-LIC) of 11%
With Net VNB growing 2x YoY, the company remains on target to achive double digit Net VNB margin by year end driven by steady topline growth, well management product mix and productivity driven growth in all channels.
Improvement in persistency across buckets (13th month at 81%) – HDFC Bank experience is expected to lead further improvement.
Aditya Birla Health Insurance
The growth has been steady with aim to breakeven by FY21-22.
Focus remains on diversification across channels, geographies, products customer segments.
Combined ratio for 9MFY20 stands at 142% compared to 160% in 9MFY19.
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Other businesses
Other businesses – on a combined basis, the businesses have turned positive at PBT level. (9MFY20 PBT of INR440mn compared to a loss of INR80mn in 9MFY19)
ARC platform has become profitable within first year of operation with AUM reaching INR29bn.
With respect to liquidity and borrowings
The company has raised long-term funds to the tune of ~INR84bn in 9MFY20 (INR44bn via term loans, INR30.5bn via NCDs, and INR9.5bn via ECB) in NBFC and ~INR26bn HFC (INR17.5bn via term loans, INR4bn via NHB, INR850mn via NCDs, and INR3.5bn via ECB).
In NBFC, there are undrawn CC/WCDL of INR38bn+ and undrawn ECB sanction of USD70mn which is not considered for ALM.
There is additional sanction of INR15bn from NHB in the HFC business (Jan 2020)
The ALM remains comfortable for both NBFC and HFC businesses.
With respect to asset quality
Gross stage-3 assets (ex-IL&FS) stood at 2.26%, an increase of 87bps QoQ.
Of this, 83bps was due to 3 corporate accounts – one real estate NBFC, one power equipment manufacturer, and one textile & plastic player. The company carries provision of INR800mn on these accounts (20% coverage) as these assets are well collateralised. Will evaluate if any additional provisioning is required as resolution is going on.
Exposure to Aditya Birla Group companies < 1% of overall loan book.
Within SME, there are on-going resolutions and asset quality is expected to improve in Q4FY20.
Within retail, the 90dpd+ is quite stable over last 2-3 quarters.
In Q4FY20, the credit cost is expected to remain at Q3FY20 levels post which there would be some improvement.
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Q2FY20 earnings concall highlights With respect to growth/strategy/outlook
The overall growth has been muted as the company cautiously reduced corporate exposure to reduce risk. However, the focus segments of retail and SME (except some stressed sub-segments) have grown quite well. o If and when the stress in corporate segment reduces, will increase the book again. Given the challenging environment, the company has taken various steps such as securing long-term growth capital, strategic management or risk, maintaining sufficient liquidity, and optimising overall portfolio with strong focus on quality.
Aditya Birla Finance (NBFC)
Will focus on retail segments going forward in the overall lending book (NBFC+HFC) Next 3 year aspirations – Continue to grow retail loan book with expansion of NIM, open ~100 branches in line with retail growth strategy, leverage tech platform to manage cost effectively SME and retail book remains a focused area and witnessed a growth of 14% YoY (despite flat overall book) The corporate book will remain flat (or decline) for rest of the year. The disbursements are being made in project loans and construction finance but very selectively.
SME and retail book –
SME – ATS is now at ~INR50mn (down 24% YoY) with focus now on TL/WCDL segment. LAP & LRD – ATS is INR230mn (down 27% YoY) with LTV of ~50% and the approach remains selective. Retail – ATS is INR0.6mn and have identified new segments for growth – travel, healthcare, and education LAS – Overall book contracted by ~27% YoY with no stage-3 exposure.
Corporate book -
Top 20 customers in large and mid corporate segment contribute ~10% of overall loan book. There is no stage-3 exposure in these top 20 accounts. Structured Finance book was run-down by ~INR17bn over last one year. Within project loan and construction finance book, there are no stage-3 exposures.
Aditya Birla Housing Finance (HFC)
The housing book is ~94% retail (home loans and LAP) and ~6% is construction finance. There is no stage 3 exposure in construction finance book (no NCR exposure other than Noida). Average ticket size – affordable housing INR1.2mn and other loans INR3.5mn.
Aditya Birla Sun Life AMC
The strategy remains to increase proportion of retail and equity going forward. Market share – overall was maintained at ~10.5% (increase in fixed income while decline in equity). Have taken various digital initiatives for improving distribution and customer experience leading to ~75% transaction being digital.
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Currently, there are no plans to demerge the business.
Aditya Birla Sun Life Insurance
Gained market share (APE growth of 20% compared to industry growth (ex-LIC) of 11% Factors like higher volumes and productivity combined with better channel mix and product mix has resulted in improvement in net VNB (turned positive this quarter). Improvement in persistency across buckets (13th month at 80%) – HDFC Bank experience is expected to lead further improvement. Will look to increase protection business in H2FY20.
Aditya Birla Health Insurance
The growth has been steady with aim to breakeven by FY21-22. Focus remains on diversification across channels, geographies, products customer segments. Combined ratio for H1FY20 stands at 155% compared to 180% in H1FY19.
Other businesses
Other businesses – on a combined basis, the businesses have turned positive at PBT level (compared to a loss in Q2FY19). ARC platform has become profitable within first year of operation.
With respect to liquidity and borrowings
The company has raised long-term funds to the tune of ~INR60bn in H1FY20 in NBFC and ~INR21.5bn HFC. In NBFC, there are undrawn CC/WCDL of INR30bn+ which is not considered for ALM. The ALM remains comfortable for both NBFC and HFC businesses.
With respect to asset quality
Given the stress in the overall economy, 15-20bps further slippage in gross stage-3 assets in Q3FY20 can be expected (from 1.39% in Q2FY20 ex-IL&FS). Exposure to Aditya Birla Group companies < 1% of overall loan book (including non- fund base exposure). Write-off in NBFC business ~INR1bn compared to ~INR700-800mn in Q1FY20.
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Company Description ABCL has grown into a financial conglomerate with strong presence across businesses which include life insurance, asset management, private equity, corporate lending, structured finance, general insurance broking, wealth management, equity, currency and commodity broking, online personal finance management, housing finance, pension fund management and health insurance.
Anchored by over 12,000 employees, ABCL has a nationwide reach via over 1,300 points of presence and more than 142,000 agents / channel partners. The company’s strategic focus is on expanding scale by surpassing industry’s growth and capturing incremental market share
Investment Theme Though ABCL’s 9mFY20 performance reflects systemic challenges, it was better than peers and sustained focus on quality over growth is commendable. Headwinds in a few segments, though managed well, warrant caution. We maintain ‘BUY/SO’.
Key Risks Few of the businesses are at transformational stage namely HFC, life insurance and few in incubating stage viz health insurance and ARC, successful scale of which will be incremental delta to earnings and valuations. Also strategic initiatives embarked upon to entail multiplier effect will be key to achieve long term sustainability of performance.
Increase in corporate tax rate from 12.5% currently to 30.0%, as proposed, could impact Aditya Birla Sunlife’s margin and profitability.
One of the key monitorables for the life insurance business is the scalability potential of its bancassurance channel (recent tie up with HDFC Bank). Any blip in that could potentially slow the improvement.
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Financial Statements
Income statement Networth Year to March FY19 FY20E FY21E FY22E Year to March FY19 FY20E FY21E FY22E Net revenue 1,32,361 1,57,296 1,80,750 2,14,093 Standalone 71,418 83,267 71,978 52,475 Opex 1,14,351 1,37,494 1,59,773 1,90,663 NBFC 74,559 89,203 1,08,477 1,30,667 Employee cost 18,034 22,070 27,046 32,757 HFC 11,915 17,059 22,940 29,788 Other cost 96,318 1,15,424 1,32,727 1,57,906 AMC 14,548 18,121 22,027 26,733 PBT 18,010 19,803 20,977 23,430 Life Insurance 20,130 21,195 22,501 23,923 Tax 6,303 4,951 5,244 5,858 Broking and Money 831 1,227 1,715 2,304 PAT 11,706 14,852 15,733 17,573 Health Insurance 1,041 827 3,353 3,297 Others/ Eliminiation 1,02,646 1,11,195 1,17,230 1,23,658 PAT Total 91,795 1,19,704 1,35,760 1,45,529 Year to March FY19 FY20E FY21E FY22E Networth (%) proportion FY19 FY20E FY21E FY21E Standalone (22) 349 211 (64) Standalone 77.8 69.6 53.0 36.1 NBFC 8,699 9,144 11,774 14,691 NBFC 81.2 74.5 79.9 89.8 HFC 748 1,144 1,881 2,848 HFC 13.0 14.3 16.9 20.5 AMC 4,468 5,390 5,891 7,098 AMC 15.8 15.1 16.2 18.4 Life Insurance 1,065 1,306 1,422 1,745 Life Insurance Specific 21.9 17.7 16.6 16.4 Broking and Money 283 397 487 590 Broking and Money 0.9 1.0 1.3 1.6 Health Insurance (2,579) (2,346) (1,160) (1,858) Health Insurance 1.1 0.7 2.5 2.3 Others/ Eliminiation (954) (3,261) (4,179) (4,040) Others/ Eliminiation 111.8 92.9 86.4 85.0 Total 11,706 12,122 16,328 21,008 Total 100.0 100.0 100.0 100.0 PAT (%) proportion FY19 FY20E FY21E FY21E Standalone (0.2) 2.9 1.3 (0.3) Key ratios NBFC 74.3 75.4 72.1 69.9 Year to March FY19 FY20E FY21E FY22E HFC 6.4 9.4 11.5 13.6 EPS (INR) 4.9 6.2 6.5 7.3 AMC 38.2 44.5 36.1 33.8 -growth (%) 16.6 26.9 5.9 11.7 Life Insurance Specific 9.1 10.8 8.7 8.3 RoA (%) 1.2 1.3 1.2 1.1 Broking and Money 2.4 3.3 3.0 2.8 RoE (%) 12.9 13.6 11.9 12.0 Health Insurance (22.0) (19.4) (7.1) (8.8) BV per share (INR) 39.4 51.4 58.5 63.1 Others/ Eliminiation (8.2) (26.9) (25.6) (19.2) P/E (x) 19.0 15.0 14.1 12.6 Total 100.0 100.0 100.0 100.0 P/BV (x) 2.3 1.8 1.6 1.5
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Peer comparison valuation Market cap Diluted P/E (X) P/B (X) ROAE (%) Name (USD mn) FY20E FY21E FY20E FY21E FY20E FY21E Aditya Birla Capital 3,069 15.0 14.1 1.8 1.6 13.6 11.9 Aavas Financiers 2,178 59.5 49.0 7.4 6.4 13.3 14.1 HDFC 54,739 23.4 18.1 2.5 2.3 16.2 15.4 Indiabulls Housing Finance 1,661 4.6 4.7 0.7 0.7 15.9 14.8 L&T Finance Holdings 3,070 11.3 7.6 1.5 1.3 14.1 18.4 LIC Housing Finance 2,834 8.0 6.1 1.1 1.0 14.4 16.7 Magma Fincorp 208 13.8 3.8 0.5 0.4 3.4 11.0 Mahindra & Mahindra Financial Services 3,030 16.8 13.3 1.9 1.8 11.6 13.8 Manappuram Finance 2,172 13.3 10.6 3.1 2.6 24.6 26.8 Muthoot Finance 4,172 11.3 10.2 2.7 2.2 26.0 23.8 Repco Home Finance 280 6.5 5.9 1.1 1.0 19.0 17.5 Shriram City Union Finance 1,255 7.4 6.5 7.4 6.5 17.7 17.4 Shriram Transport Finance 3,128 7.7 6.6 1.3 1.1 18.7 18.6 Median - 11.3 7.0 1.4 1.2 16.1 17.1 AVERAGE - 15.7 12.6 2.1 1.9 16.2 17.4 Source: Edelweiss research
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Additional Data Directors Data Kumar Mangalam Birla Chairman & Non Executive Director Sushil Agarwal Non- Executive Director Vijayalakshmi R Iyer Independent Director Santrupt Misra Non- Executive Director S.C.Bhargava Independent Director Arun Adhikari Independent Director P.H. Ravikumar Independent Director
Auditors - Deloitte Haskins & Sells LLP *as per last annual report
Holding - Top 10 Perc. Holding Perc. Holding Premji Investments 3.59 Life Insurance Corporation of India 2.31 Vanguard Group 0.74 St James's Place PLC 0.54 Franklin Templeton Asset Management 0.51 Nippon Life India Asset Management 0.48 Dimensional Fund Advisors 0.38 UTI Asset Management 0.29 Aditya Birla Sun Life Asset Management 0.28 SBI Pension Funds 0.09 *as per last available data
Bulk Deals Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year
14 Edelweiss Securities Limited RATING & INTERPRETATION
Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk Aavas Financiers REDUCE SU M Aditya Birla Capital BUY SO H Axis Bank BUY SO M Bajaj Finserv REDUCE SU L Bank of Baroda BUY SU M DCB Bank BUY SP M HDFC BUY SO L Federal Bank BUY SO L ICICI Bank BUY SO L HDFC Bank BUY SO L Indiabulls Housing Finance HOLD SU M IDFC FIRST BANK BUY SP L Kotak Mahindra Bank BUY SP M IndusInd Bank BUY SO L LIC Housing Finance BUY SO M L&T Finance Holdings HOLD SP M Mahindra & Mahindra Financial Services BUY SP M Magma Fincorp BUY SP M Max Financial Services BUY SO L Manappuram Finance HOLD SU H Muthoot Finance BUY SO M Multi Commodity Exchange of India HOLD SP M Punjab National Bank REDUCE SU M REC HOLD SP M Repco Home Finance BUY SP M Shriram City Union Finance BUY SP M Shriram Transport Finance BUY SO M South Indian Bank BUY SP M State Bank of India BUY SO L Union Bank Of India HOLD SU M Yes Bank BUY SP M
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING
Ratings Criteria Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe within the sector RELATIVE RISK RATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model SECTOR RATING
Ratings Criteria Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
15 Edelweiss Securities Limited Banking and Financial Services
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]
Aditya Narain
Head of Research [email protected]
Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services Aavas Financiers, Aditya Birla Capital, AU Small Finance Bank Ltd, Axis Bank, Bajaj Finserv, Bank of Baroda, DCB Bank, Equitas Holdings, Federal Bank, HDFC, HDFC Bank, HDFC Life Insurance Company Ltd, ICICI Bank, ICICI Lombard General Insurance Company Ltd, IDFC FIRST BANK, Indiabulls Housing Finance, IndusInd Bank, ICICI Prudential Life Insurance Company Ltd, Kotak Mahindra Bank, LIC Housing Finance, L&T Finance Holdings, Max Financial Services, Multi Commodity Exchange of India, Manappuram Finance, Magma Fincorp, Mahindra & Mahindra Financial Services, Muthoot Finance, Punjab National Bank, Power Finance Corp, REC, Repco Home Finance, SBI Life Insurance Company Ltd, State Bank of India, Shriram City Union Finance, Shriram Transport Finance, South Indian Bank, Union Bank Of India, Yes Bank Recent Research
Date Company Title Price (INR) Recos
03 -Feb-20 Magma Business normalising; asset 55 Buy Fincorp quality volatility persists ; Result Update
01-Feb-20 BFSI (Life Budget commentary Insurance) forebodes ULIP disruption; Budget Review 01-Feb-20 BFSI Union Budget 2020 – Impact analysis; Budget Review
1Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 161 67 11 229 Buy appreciate more than 15% over a 12-month period * 1stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn 743 Reduce depreciate more than 5% over a 12-month period Market Cap (INR) 156 62 11 594
One year price chart 446 120
(INR) 297 110 149 100
(INR)
- 90
14
14 14
14 14
14
14
14
14
14
14
14
-
- -
-
-
-
-
- -
- -
- 80
Jul
Jan
Jun
Oct
Apr
Sep Feb
Dec
Aug Nov
Mar May
70
19
19 19
19
19 19
20
19 20 19
19 19
19
-
-
-
-
-
-
- - - -
- -
-
Jul
Jan
Jun
Oct
Apr
Feb Feb Sep
Dec
Aug
Nov Mar May Aditya Birla Capital
16 Edelweiss Securities Limited
Aditya Birla Capital
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