Aditya Birla Money Limited (ABML) is a prominent player in India’s financial services sector. Established over two decades ago, the company operates as a full-service broking firm catering to a diverse clientele, including retail investors, high-net-worth individuals (HNIs), corporates, and institutions. ABML provides a comprehensive suite of products and services encompassing investments across various asset classes.
ABML is present in equity broking, commodity broking, depository services, PMS (portfolio management services) and distribution of products like mutual funds, insurance and loans of the Aditya Birla group companies. Based in Chennai, the company has centralized back-office operations. ABCL, the holding company for the financial services business of the Aditya Birla group, owns 73.5% stake in the company.
Segmental revenue mix: (FY24)
- Broking: 85.61%
- Wholesale Debt Market: 13.32%
- Others: 1.08%
Revenue Composition:.
- Interest Income: 42.31%
- Fees and Commission Income: 53.15%
- Net Gain on Fair Value Changes: 4.55%
Now an interesting thing to note in this company is that their parent company is undergoing a digital transformation:
Change in Management at Aditya Birla Capital(ABC):
Vishakha Mulye, the new CEO of Aditya Birla Capital (ABC), has been implementing several strategic initiatives to drive growth, simplify operations, and enhance customer experience. She has introduced a “One ABC, One P&L” approach, unifying the company’s business operations and emphasizing a seamless experience for customers. This strategy focuses on streamlining business operations to make the company more agile.
Aditya Birla Group has a lot of subsidiaries and all of them have good enough scale, except for their broking business Aditya Birla Money Limited which is very tiny compared to its peers like Upstox, Zerodha, Angel one etc.
Aditya Birla Capital is the financial services business of Aditya Birla Group and their new CEO wants to grow their subsidiaries through cross selling and building a D2C app to lower their customer acquisition costs and directly source customers. Thus this cross selling initiative should benefit ABML the most as it only has 7 lakh customers with an opportunity to tap 3.5 crore customers from Aditya Birla Group.
Walking the talk:
Historical Performance:
Its last 5 year PAT CAGR has been 40%!
Now one important thing to note is that this has partly been achieved due to aggressive growth in their Margin Trading Facility(MTF) book and the good part is that they had NIL credit loss. Given the significant credit losses currently observed in the microfinance (MFI) sector, this business segment appears particularly lucrative for ABML.
Lets understand some changes at ABML:
Old app:
New app:
They have revamped their mobile and desktop platforms and have also started cross selling life insurance, health insurance , mutual funds etc after receiving regulatory approval in 2023:
Source: ABML AR
Management changes at ABML:
Their current Product Lead for Digital Products and Platforms is from IIFL Securities.
Have hired Associate Vice President of Kotak Securities:
Aggressive hiring on Linkedin:
The job description indicates that the hiring entity is Aditya Birla Money, not Aditya Birla Capital.
Also we can see in the job description their strategy of cross selling ABC products thus their commission income can increase from selling products like Health Insurance, Life Insurance etc to existing customers thus de-risking itself from brokerage income and interest income from MTF book.
Thus this aligns with their vision and also the vision of the Group Company(ABC).
Competitive Intensity:
When discount brokers offer free equity delivery (i.e., no brokerage charges for buying and holding stocks), they can still earn substantial revenue through brokerage on Futures & Options (F&O) segment and other transaction charges like Annual Maintenance Charges(AMC), cross selling, margin trading etc as they also earned volume based rebated from exchanges which was a substantial income source for discount brokers but due to new regulations this rebate has been curtailed substantially thus providing a level playing field.
Upstox CEO interview with ET:
Source: ET prime
Ashish Nanda from Kotak Securities: President and Digital Business head
Source: Business Standard
Soruce: Deccan Herald
I believe ABML can grow its client base by increasing ARPU through cross-selling and acquiring new customers at a lower cost, leveraging the advantages provided by its parent company. Meanwhile, other brokers may experience a reduction in revenue due to lower volumes in F&O segment.
Risks:
- Despite recent regulatory changes that have reduced competitive intensity, the broking industry remains highly competitive, with new players—especially discount brokers—aggressively pursuing market share, often at a loss, due to the low barriers to entry in the business.
- A significant portion of their income comes from MTF (Margin Trading Facility), but brokers like Kotak Securities have become more aggressive in this space, leveraging access to low-cost funds. While they have incurred no credit losses in this segment, extreme volatility from a black swan event could still lead to potential credit losses.
- Out of 7 lakh total clients it only has 74,492 active clients on NSE which suggests that there is lack of client engagement.
- Technical glitches, cyber security attacks and system failures can disrupt trading operations leading to losses and reputational damage.
- Changes in regulations can increase compliance costs and impact the way brokers conduct business.
- The current scale of the business is very tiny and a lot depends on the management’s capability to execute.
- The broking business is cyclical in nature and linked to the capital markets.
Valuations:
Although it has managed to increase its PAT at a 25% CAGR over the last 10 years, it remains small compared to other players and needs further growth to achieve a competitive scale. Successful acquisition of new clients and effective cross-selling of other ABC products could lead to a rerating.
Disclosure: Hold a small tracking position
