BofA Securities Expects Aditya Birla Capital’s Profit To Double Over Two Years

Shares of Aditya Birla Capital Ltd. surged after BofA Securities initiated coverage on the financial services provider with a ‘buy’ rating.

Industry-leading growth with upselling, cross-selling, focus on granularisation in lending business, turnaround of loss-making businesses as they gather scale and vast scope for value unlocking have helped the global research firm turn bullish on Aditya Birla Capital, according to a note. BofA set a price target of Rs 160 apiece on the stock, implying a potential upside of 31% from Wednesday’s closing.

“Aditya Birla Capital is well diversified with a strong bouquet of products to meet all financial needs across customer lifecycle — home and personal loans to risk management and mitigation to wealth management,” BofA said in the note.

The company’s lending businesses, it said, are focussed on improving loan mix with increased granularisation supporting higher profit margins.

BofA expects Aditya Birla Capital’s net profit to double over FY21-23 with the ramp-up of the life insurance business and lower earnings drag as the fast-growing but loss-making health insurance business becomes profitable. The company expects this business to break-even by March 2022.

The research firm also pegged Aditya Birla Capital’s consolidated return in equity to expand by 505 basis points over the next two years. “Historical value-unlocking events suggest significant upside potential,” the note said, citing examples of HDFC and ICICI Bank.

But a failure to expand distribution, a potential rise in gross NPAs and a contraction in net interest margin are key risks, BofA said.

Shares of Aditya Birla Capital are off the day’s high after gaining as much as 4.37% in early trade on Thursday to Rs 127.7 apiece — the highest since September 2018. The stock has gained in eight of the last nine sessions, rallying 40% during the period. All the eight analysts tracking the company recommend a ‘buy’, according to Bloomberg data. The average of 12-month consensus price target implies an upside of 9.2%.