Aditya Birla Capital Ltd – Stock Analysis

Q2 FY20 Results Highlights of Aditya Birla Capital Ltd

Introduction

In this article, we are going to do Aditya Birla Capital Ltd (ABCL) stock analysis. Key business segments, Q2 FY20 results, shareholding pattern and the current valuation of the company are also analysed in detail.

Aditya Birla Capital Ltd – Stock Analysis

Company Profile

• Aditya Birla Capital Limited (ABCL) is a part of Aditya Birla Group.
• ABCL is the holding company for the financial services businesses of the Aditya Birla Group. (It was formerly known as Aditya Birla Financial Services Limited)
• The company is engaged across life insurance, asset management, NBFC, infrastructure project and structured finance, private equity, broking, wealth management and distribution, online money management, and general insurance advisory services. 

Key Business Segments

• Aditya Birla Capital Limited (ABCL) is one of the largest financial services players in India with presence across protection, investment, Financing and Advising business.
• The key business verticals of ABCL are :
• Lending :
  • NBFC : Aditya Birla Finance Ltd
  • Housing Finance : Aditya Birla Housing Finance Ltd
• Insurance :
  • Life Insurance : Aditya Birla Sun Life Insurance Ltd
  • Health Insurance : Aditya Birla Health Insurance Ltd
• Asset Management : Aditya Birla Sun Life AMC Ltd
• Here, NBFC and AMC are established businesses, HFC and Life Insurance are transformational businesses, while Health Insurance is an incubating business.
• Thus, ABCL is having a diversified business model like other financial entities like HDFC and Bajaj.

Aditya Birla Capital Ltd – Subsidiary Companies

• Aditya Birla Finance Ltd, Aditya Birla Housing Finance Ltd and Aditya Birla Insurance Brokers Ltd are fully owned subsidiaries of Aditya Birla Capital with 100% stake.
• While Aditya Birla Sun Life Insurance and Aditya Birla Sun Life AMC both are joint venture between Aditya Birla Group (51% stake) and Sun Life Financial Inc. Canada (49% stake).

Aditya Birla Capital – Q2 FY20 Results Highlights

• Gross Revenue
  • In Q2 FY20, the Gross Revenue is increased by 10.7% YoY to Rs.3,976 Cr from Rs.3,591 Cr in Q2 FY19. While the QoQ rise is 9% from Rs.3,646 Cr in last quarter.
• Operating Profit
  • In spite of 10.7% growth in the Gross revenue, operating profit has increased by 20.4% YoY. It indicates the improved efficiency resulting into the lower growth in operating expenses.
  • Operating profit was Rs.1483 Cr in Q2 FY20 from Rs.1232 Cr last year. However, the QoQ performance is poor giving negative growth of -5.5%. In spite of 9% QoQ rise in revenue, operating profit was lower on account of increased operating expenses in Q2 FY20.
  • Operating profit margin is also deteriorated to 37.29% in September 2019 quarter from 43.07% last quarter but it is improved YoY from 34.32% last year.
• Profit Before Tax (PBT)
  • PBT was increased just by 31% YoY from Rs.284 Cr to Rs.372 Cr in Q2 FY20. However, the sequential growth QoQ was negative almost -15%.
• Net Profit
  • On account of reduced tax from 41%-46% to 18%, the net profit increase by 37.6% YoY. PAT in Q2 FY20 was Rs.256 Cr.
  • Differed Tax Adjustment (DTA) was Rs.64.83 Cr.

Revenue QoQ Trend

There is very inconsistency in the revenue. We can say the revenues are consistently inconsistent past few quarters.

Revenue Mix

• The revenue mix is shown in above column chart. In Q2 FY20, Life Insurance, NBFC, Housing Finance and Asset Management were having 42%, 36%, 8% and 7% contributions respectively in the Gross Revenue.
• Life Insurance sector was the highest revenue offering sector amongst the other business segments.
• Asset Management business’s revenue % contribution is consistently decreasing YoY as well as QoQ.

Operating Profit & Operating Profit Margin QoQ Trend

Operating Profit of ABCL is increasing sequentially from last few quarters. However, the for the recent quarter the increasing trend of operating profit has affected due to the high operating expenses in the September 2019. Owing to the same, the operating profit as well as margin (%) has came down QoQ.

Aditya Birla Capital Ltd – Current Statistics & Valuation Update

• Debt to Equity Ratio = 5.52. The company is debt-burdened (very high debt). The interest coverage ratio is also very low 1.35. It is very negative sign for the company.
• The shareholding pattern on the company in September 2019 quarter with % stake of key shareholders is :
  1. Promoters = 72.70%
  2. FIIs = 2.8%
  3. Mutual Funds = 1.39%
  4. Other DIIs = 7.09%
  5. Public = 16.02%
• The lower stake of institutional investors like FII and DII indicates that they not very confident about the future earnings visibility and growth potential of the company for the long-term.

Valuation

• The current Price to Earnings ratio (19) is much lower than its historical average PE ratio(35.4). It is mainly because of the continuous falling trend in the share price of the company.
• The stock was trading at Rs.237 when listed, but today the share price has fell almost 65%. The stock is currently trading at Rs.82.