This mid cap stock which is the financial services arm of the Aditya Birla group surged 5 percent after Macquarie highlighted an upside potential of over 40 percent.
Stock Performance
With a market capitalization of Rs 48,526.03 crore, Aditya Birla Capital Ltd was trading at Rs 186.15 per share compared to its previous closing price of Rs 185.65 per share.
The stock is currently trading at a discount of 25 percent from its 52-week high of Rs 246.95.
Brokerage View
Macquarie sees the recent underperformance as a buying opportunity and maintains an “outperform” call with a 12-month target price of Rs 260, indicating an upside potential of 40 percent.
Reasons for Underperformance
There has been a slowdown in the AUM growth of the company, dropping to 20 percent from 40 percent at its peak. This is mainly attributed to a sharp decline in personal loans. Further, Macquarie stated disruptions with a major fintech partner, as the key reason for the stock’s recent weakness. Further, increasing credit costs have led to a decline in ROA to 2 percent from 2.4 percent in June 2023
Future Outlook
Macquarie remains optimistic about Aditya Birla Capital’s long-term growth, hoping for a recovery in profitability. The company’s SME loan book is expected to grow at 25-30 percent CAGR in the next three years. Additionally, as the unsecured NPL cycle normalises, it will lead to a sustainable ROA of 2.3-2.4 percent.
Key catalysts for recovery include falling interest rates, along with a rise in unsecured loan growth and a decline in credit costs. Macquarie believes AB Capital’s AAA rating and cost-conscious approach position it well for long-term profitability, with current valuations remaining attractive despite short-term pressures.
Company Overview
Aditya Birla Capital is the financial services arm of the Aditya Birla Group. The company is engaged in providing financial services including lending, asset management, life and health insurance among others. It is both a non-banking finance company as well as a housing finance institution.
Financial Performance
In the latest quarter, the company reported a 7 percent growth in its revenue from Rs 8,800 crore in Q3 FY24 to Rs 9,381 crore in Q3 FY25. The net profits however, declined 5 percent from Rs 760 crore to Rs 724 crore during the same period.
Written by Shwetha Sairam
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
