The share price of Aditya Birla Capital is in focus. The global brokerage Macquarie has shared a positive outlook on the stock. The brokerage has maintained an ‘Outperform’ rating and set a target price of Rs 415. This indicates a potential upside of about 18% from current levels.
According to the brokerage report, the company’s latest quarterly performance shows a mix of steady earnings, improving asset quality, and strong loan growth.
Let’s take a look at the key reason why the brokerage house is bullish on the stock and the rationale behind it –
Macquarie on Aditya Birla Capital: Earnings steady despite higher costs
The March quarter numbers show that profitability remained largely in line with expectations. The brokerage house added, “PAT in-line; higher opex offset by lower credit costs.”
The Profit After Tax (PAT) surged 19% year-on-year to about Rs 780 crore. However, operating expenses (opex) were higher than expected. The cost-to-income ratio stood at around 35%, compared to the brokerage’s estimate of 33%.
Furthermore, Macquarie in its report added that this increase in costs, however, was balanced by lower credit costs, which came in at 1.0% versus the expected 1.2%.
Return on Assets (RoA), which measures profitability relative to total assets, improved slightly to 2.3% on a quarter-on-quarter basis.
Macquarie on Aditya Birla Capital: Loan growth remains strong, asset quality improves
A key highlight the brokerage house noted in its report is the strong growth in the loan book.
“Assets Under Management (AUM) growth was healthy at 27% YoY, driven by personal loans (+38% YoY) and unsecured business loans (+47% YoY),” added the brokerage in its report.
At the same time, asset quality has improved. Credit costs declined to a five-year low of 1.0%. This is supported by a drop in Gross Non-Performing Assets (GNPA), which are essentially bad loans.
According to the brokerage report, “Credit cost fell 19bps QoQ to a 5-year low of 1.0%.”
Macquarie on Aditya Birla Capital: Margins under pressure, but recovery expected
Margins saw a slight dip during the quarter. Macquarie further noted, “NIM fell 4bps QoQ due to competitive pressure and MTM losses.”
The decline was mainly due to competition and mark-to-market (MTM) losses.
However, the outlook remains stable. According to the brokerage report, margins are expected to recover as the share of higher-yield loans increases. Growth in personal and unsecured loans, which currently make up about 23% of the loan book, could support this recovery.
The brokerage expects this shift to help improve margins by 25-30 basis points over the next few quarters, with a target RoA of 2.5% by the end of FY27.
Macquarie on Aditya Birla Capital: Insurance arm adds to growth momentum
The insurance business also contributed positively. As per “Value of New Business (VNB) margin expands on the back of rising protection mix.”
Margins improved due to a higher share of protection and annuity products, which are generally more profitable compared to unit-linked insurance plans (ULIPs).
As per the brokerage firm report, “VNB margins improved 20bps YoY.”
Conclusion
According to the brokerage report, the combination of stable earnings, better credit trends, and improving margins supports its positive stance on the stock.
Disclaimer: This report is based on third-party brokerage analysis and is for informational purposes only. The target price and ratings mentioned are projections and not a guarantee of future performance; actual market movements may vary. Investing in equities involves risks, and readers are advised to consult a SEBI-registered investment advisor before making any financial decisions based on this information.
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