Aditya Birla Capital is one of Macquarie’s top picks and they expect the share price to double in 3 years. According to Macquarie, the company’s “rising margins driven by falling rates, growth in higher yielding unsecured loans, and falling credit costs leading to higher return on assets,” are some of the key catalysts for the Outperform rating on the stock. They have put a 12-month target price of Rs 260 per share, implying a whopping 40% upside from current levels.
Macquarie on Aditya Birla Capital: Valuations attractive
Macquarie says Aditya Birla Capital’s “valuations are attractive at current levels” and “growth and profitability metrics over the medium term is expected to improve.” The brokerage elaborated that “core NBFC implied valuation is at 0.9x FY27E P/BV which is cheap for its sustainable ROA of 2.3%.” This “represents a 30-70% discount to its peer set with average sustainable ROA of around 2.8%. We believe the gap is too large and expect to narrow,” they added.
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According to Macquaries, the company is a play on the SME growth story in India. They added that with the SME book estimated to be “growing at 25-30% CAGR over the next three years,” the share offers a promising entry point.
Macquarie on Aditya Birla Capital: What is fundamentally good?
According to Macquarie, Aditya Birla Capital’s “unsecured personal-loan growth should pick up and margins should also improve due to a falling rate cycle, aiding recovery in ROA.” They expect that the loan growth, despite the sharp slowdown in personal loans, “is running at 20% and expected to gather pace.”
Macquarie on Aditya Birla Capital: Key Risks
However, Macquarie did list out some risks to its investment thesis. According to them, “Deterioration in asset quality in the NBFC segment may lead to higher credit costs and lower ROA.”
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The other key risk stems from potential attrition of senior management attrition as this could affect execution. That apart slower growth driven by decline in unsecured loan book is another concern, as per Macquarie.
Aditya Birla Capital stock performance
The Aditya Birla capital share price closed March 27 trading session with nearly 3% gains.
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