Aditya Birla Capital: Equentis Scale 1 2 3 4 5 Below Avg. Avg. Good Very Good Excellent

ADITYA BIRLA CAPITAL
Equentis Scale
1 2 3 4 5
Below Avg. Avg. Good Very Good Excellent
Sr. Rating
Remarks
No. (Score)
Overall score 4.6
1 Financial Ratios Index 4.3

3 year NBFC Loan Book AUM CAGR of 27.4% & Forward 5-yr CAGR of 22% on a higher base 5.0
3 year Housing Finance Loan Book AUM CAGR of 81.9% on a low base & Forward 5-yr CAGR of 29.7% 5.0
3 year Asset Management AUM CAGR of 21.3% & Forward 5-yr CAGR of 9.5% on a higher base 5.0
3 year NBFC NIM Avg. of 4.07% & Housing Finance NIM Avg of 2.52% Forward 5-yr avg. of 4.35% for NBFC and
4.0
2.76% for Housing Finance.
3 year reported PAT CAGR of 32.9 % & Forward 5-yr PAT CAGR of 28.5% 5.0
RoA – 0.8% 3-yr Avg. & Forward 5-yr Average RoA of 1.1% with an increasing bias (1.3% by FY24) 3.0
RoE – 7.5% 3-yr avg.& Forward 5yr Average RoE of 12.2% 3.0
2 Management Pedigree Index 4.2

Ownership: Promoter stake 72.7% with Grasim Industries holding 55.98%; Strong parentage of Aditya Birla Group,
FII+DII ownership stands at 11.54; Credible names invested in the company like PI Opportunities Fund I 5.0
(Investment for of Mr. Azim Premji) (2.9%), Franklin Templeton (0.5%) and Reliance Mutual Fund (0.35%).
Promoter Shares Pledged: Nil. 5.0
Key Management Profile 5.0
Track record towards Capital Discipline, Acquisitions, Capital Expansions 4.0
Track record towards Accounting Disclosures & Corporate Governance 3.0
Track record towards Business Risk Diversification & Mitigation 4.0
Track record towards Business Performance Guidance vs. Actual Performance 4.0
Rewarding & Protecting interests of Minority shareholders 3.0
Business foresight & Prudence – successful scale up of operations 5.0
3 Opportunity and Growth Index 5.0

Presence in high growth segments: ABCAP has presence in a total of 13 business lines from lending, asset
management, insurance and advisory. It aims to be a one stop shop for all the financial services needs of
individuals and corporates. As India is expected to continue to grow at a rate higher than other large economies, 5.0
the contribution of financial services businesses is expected to become higher. Having established presence in
these businesses, ABCAP is expected to benefit over the long term.
Diversified Revenue profile creating multiple growth levers: In FY18, revenue contribution of various segments
was as follows: lending business: 37.9%, insurance: 49.3%, AMC business: 9.3%, while the rest was contributed
by other smaller segments. Thus, the company’s revenue profile is well diversified. However, ~90% of PBT came 5.0
from lending and AMC business. With turnaround of Life Insurance business and reduction of losses in health
insurance, PBT profile is also expected to become more diversified.
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ADITYA BIRLA CAPITAL
Market leadership position in multiple segments: ABCAP is among the top 5 NBFCs in India with a total AUM
of Rs. 493 bn as on 31st December 2019. At the end of Q3FY19, the life insurance business ranked 7th in India as
per the individual FYP collected. In AMC business as well, it stands 4th in India with respect to the total AUM, with 5.0
a market share of 10.3%. Hence, the company has successful established dominant position in multiple
businesses, which we expect it to leverage going forward.
Cross selling opportunities: With an active customer base of ~10 mn in FY18, there is high potential to cross
sell products. Presence in all the major segments in the financial services ensures that customer need not migrate 5.0
to other companies for want of a service.
Strong parentage cushion during business downcycles: ABCAP has a strong and trusted parentage of Aditya
Birla Group. In times when individual segments face trouble, they can always rely on the parentage to support
them. For example: when the entire NBFC sector was reeling under pressure in the after math of IL&FS default, 5.0
ABFL continued with business as usual. Parentage allows the company to raise capital even during tough times
differentiating it from other smaller players.
4 Stakeholder Satisfaction Index 4.8

Leveraging: Despite humungous growth in loan book, leverage has been maintained at 6-6.5xs in the last 5 years,
which is well below the industry norms. Management has been able to infuse funds in the growing businesses to
4.0
fund growth. The lending business has now reached scale and additional fund infusion is not expected in the near
term, as it has enough capital adequacy.
Minority Interests: No dividends are paid since multiple business segments are still in the investment mode.
Investing internal accruals in high growth business makes business sense compared to distribution of dividends. 4.0
Management has not taken any decision which is against the minority stakeholders’ interest.
Employees: All the vertical heads & key management personnel are professionally qualified and have over 20
5.0
years of experience.
Regulatory: There are no pending litigations or criminal cases against the company or any of its promoters. The
5.0
company has proper Board-processes and compliance mechanism In-place.
Auditors: Nil auditor qualifications. 3.0
5 Threat Management 4.2

Revenue growth: Has built a diversified revenue model with focus on credit, AMC, insurance, and other smaller
5.0
verticals.
Yield sustainability: Over 90% of the loan book is collateralized and comes across as a largely floating rate book.
In Q3Fy19, when borrowing costs increased across the sector, ABCAP was able to maintain its NIMs, indicating 4.0
its ability to pass on the higher cost to borrowers.
Asset quality: Has put in place robust credit appraisal and risk assessment systems, leading to low credit cost,
high provision coverage and best-in-class NPAs. Company has consciously diversified its loan book among sectors
and segments. Despite having ~49% exposure to corporate book, credit costs as low. This is attributable to 5.0
company working with larger corporates, which have strong balance sheets. In chasing safety, the NIMs are lower
than peers.
Insurance segment scale up: Currently, insurance segment has been dragging the consolidated down mainly
due to losses in the health insurance business, which is still in gestation period. Ability to scale up the business 4.0
quickly and reduce losses, would be important for the overall profitability of the company.
Regulatory risk: Adverse regulatory changes such as increase in risk weights, sectorial and borrower exposure
lending cap, asset classification and provisioning requirement, capital adequacy requirement, SEBI related
3.0
compliance, implementation of direct tax code impacting insurance business, can impact ABCAP’s growth and
profitability.
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ADITYA BIRLA CAPITAL

1 Financial Ratios Index 4.3

2 Management Pedigree Index 4.2

3 Opportunity and Growth Index 5.0

4 Stakeholder Satisfaction Index 4.8

5 Threat Management 4.2

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