- It comes from a highly reputed business franchisee with stake of about 72%.
- V well diversified Product offerings, virtually offers all the financial products under the sun
- Poised to capture the immense growth potential available due to extremely low penetration of financial products
- Robust CAGR of for last two years (could only found the data for last few years) and
- Attractive valuation at the current price after 40% correction from the peak
Would broadly classify the company’s diversifies business in these segments;
- NBFC Lending business (exc Housing Finance)
- Housing Finance
- Asset Managment
- Insurance Business- Life Insurance & Health Insurance
- Others (Broking, and others)
- Aditya Birla Finance Ltd
Lending Book Size: 43242 crores
Gross and Net NPAs under 1%
- Increase penetration in Tier 2/3 cities, together constituting ~85% of SME revenue pool. Target to add 22 cities to reach 50 cities by July 2018
- Leverage our end-to-end lending platform to build scale in retail and SME
- Scale up wealth business leveraging synergies where possible
Aditya Birla Housing
Lending Book Size: 8137 crores
Gross and Net NPAs under 0.5%
- Target to add 33 new branches by March 2019, reaching a total of 84 branches
- Continue to scale up affordable housing to tap into Tier 2 – 4 cities
- Target to reach 60: 20: 20 product mix in Home Loan: LAP: Construction Finance
- Creating synergies across ABCL/ ABG to drive future growth
Steadily Gained Market Share to Become No.3 Mutual Fund in India
AAUM market share of 10.75%, AUM Size: 267739 crores
Monthly SIP book1 over Rs. 950 crore
Pan-India presence across 226 locations
ABSL Insurance Limited
Other segments like health insurance, broking business and others are currently small but has sizeable addressable market.
Valuation and Rationale
Low Mcap compared to the size of the opportnuity served: The current market cap of the company is around 30K crores. I guess the most comparable peer is Bajaj finserve and bajaj finance which together have market cap of 2 lac crores. However, I am not sure how to combine both and compare them with AB capital. On a rough cut basis i could potentially foresee AB Cap reaching to 1 lac Mcap in next 5-6 years (i.e. more than 3.0x)
Good Market Share and Presence in high growth buiness segments: I particularly like this company as it not only caters to under-penetrated segments like Insurance, financial savings and lending but has sizable market share in all three segments, particularly in AMC and Life Insurance business.
Broad Reach and Distribution Network;Furthermore, they have wide reach and network with 1600 plus touch points across 400 cities, closed to 2 lac agents and 15k employees.
Cross selling of products:
High quality management team and corporate governance
Sizable investments incurred in last 18-24 months, thereby the benefit of the investments are expected to accrue in the coming years.
- Competitive landscape; There are number of competitors and some of them are well established like ICICI pru, HDFC life in insurance segment while private banks and NBFC in Lending business. I believe since the since the size of the addressable opportunity is very large, it can encompass quite a few players.
- High borrowing cost in comparison to CASA established banks: It remains a risk compared to CASA banks but has good presence in capital markets and can issue NCDs and bonds at reasonable price compared to other NBFC. Credit rating on long term debt: (AA+/Stable) by ICRA. AAA rating could further lower thier borrowing costs. Peers like India bulls housing fianance NCDs are rated one notch higher at AAA.
- Low profits in some of the businesses which are in nascent stage of operations including losses in the recently launched health insurance business.
I was thinking of valuing each business separately but then I realize my lack of expertise to do that…It would be great if our fellow colleages can throw some more colour on it and their thought process on the entire company.
Really looking forward to the views/opinions of the great minds that we have in this forum.
Disclosure: Not invested…tracking