Jefferies has given a ‘Buy’ rating for Aditya Birla Capital with a target price of Rs 215. The given target price sees 23% upside target. The share price of Aditya Birla Capital fell 1.94% to Rs 177 during the intra-day trade on Thursday. However, Jeffries showed optimism in its growth and said,” We believe Aditya Birla Cap is poised to double profits in the next 3 yrs, capitalizing on a wider network & higher cross-sells. NBFC can gain from MSME lending opportunities as it expands branches, leverages low CoF & shifts to lower ticket loans,” Jefferies explained in the report.
The report further stated that, “over FY23-26, this should drive 29% earnings per share CAGR & lift return on equity to 16% at NBFC; in Life insurance, strong APE growth, better value of new business (VNB) margins due to scale gains can drive 26% VNB CAGR. Valuations seem reasonable. Initiate at Buy at a target price of Rs 215.”
Jefferies cautioned that slower growth, lower NIMs and asset quality issues emerging in unsecured portfolio/ developer portfolio in lending business as a key risk. “Slower-than-expected APE growth and lower-than-expected VNB margins in the life insurance business. Potential changes in group structure including possible listing of insurance subsidiaries could lead to holding co-discount on those, which could also impact our SOTP valuation,” highlighted the report.