ABCAPITAL: Digital Expansion And Market Reach Will Shape Upcoming Developments

Key Takeaways

• Expansion into underserved markets and digital transformation are driving sustained growth in assets, revenue, and customer margins across core business segments.
  
• Rigorous risk management, operating leverage, and industry-wide formalization enhance profitability, reduce credit costs, and position the company to gain market share.
  
• Elevated credit risk from unsecured lending, margin compression, and intense fintech competition threaten profitability and market share despite investments in scalability and digital capabilities.

Catalysts

Through its subsidiaries, provides various financial products and services in India and internationally.

• The ongoing shift of Indian households from physical to financial assets, combined with Aditya Birla Capital's expanding distribution in tier 3/4 towns and strong momentum across mutual funds, insurance, and retail lending, supports a longer-term structural increase in addressable market size-driving sustained AUM and revenue growth.
  
• Enhanced digital adoption-through proprietary platforms like ABCD (B2C) and Udyog Plus (B2B), growing digital onboarding, and improved internal digital processes-reduces customer acquisition costs, expands scale, and improves cross-sell opportunities, boosting operating leverage and supporting higher net margins over time.
  
• Systematic investments in risk management, prudent underwriting, increased share of secured loans, and government-guaranteed MSME book (over 50% coverage) have resulted in declining stage 2/3 loans and stable credit costs-positively impacting earnings stability and protecting future profitability, even if legacy unsecured stress persists in the near term.
  
• Significant operating leverage is now visible in both housing finance and core lending (OpEx to AUM/Assets sharply improving), with prior capacity and technology investments beginning to reduce cost ratios-this sets a runway for further margin expansion and increased ROE as growth sustains.
  
• Industry-wide formalization of credit and insurance, greater regulatory transparency, and preference for integrated, full-stack financial service providers positions Aditya Birla Capital-given its diversified portfolio and strong brand-to gain share and benefit from increased customer lifetime value, leading to structurally stronger fee-based revenue and more resilient earnings growth.

Aditya Birla Capital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aditya Birla Capital's revenue will grow by 23.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 11.4% today to 10.8% in 3 years time.
• Analysts expect earnings to reach ₹59.9 billion (and earnings per share of ₹22.7) by about September 2028, up from ₹34.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.2x on those 2028 earnings, up from 21.4x today. This future PE is greater than the current PE for the IN Diversified Financial industry at 23.5x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.0%, as per the Simply Wall St company report.

Aditya Birla Capital Future Earnings Per Share Growth

Risks

• Persistent stress and elevated NPAs in the unsecured MSME loan segment, with Stage 3 loans at 5.4% and only 35.7% provision coverage despite reliance on slow-to-realize government guarantees, could lead to higher credit costs and impact net earnings if broader asset quality deteriorates or recoveries are delayed.
  
• The company's strong growth in unsecured personal and consumer loans, while recently stabilizing, still faces industry-wide concerns of elevated consumer leverage; any adverse macroeconomic shifts or increased borrower defaults could pressure revenue and net margins through higher provisioning needs.
  
• Net interest margins (NIMs) remain under pressure and are highly dependent on maintaining the right product mix between secured and higher-yield unsecured lending; further shifts in the lending mix or increased competition, especially in the prime lending and mortgage space, could continue to compress margins and affect profitability.
  
• The group's significant investments in technology platforms, branch expansion, and new business lines are intended for long-term scalability, but if returns from these outlays are lower than expected or expense discipline falters, operating leverage may not fully realize, impacting cost-to-income ratios and earnings growth.
  
• Industry-wide competition-particularly from agile fintechs and digital-first NBFCs in key segments such as personal loans, SME lending, and retail insurance-could erode Aditya Birla Capital's market share, put downward pressure on pricing, and reduce future revenue growth in core business lines.

Valuation

• The analysts have a consensus price target of ₹320.2 for Aditya Birla Capital based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹554.7 billion, earnings will come to ₹59.9 billion, and it would be trading on a PE ratio of 24.2x, assuming you use a discount rate of 20.0%.
• Given the current share price of ₹279.25, the analyst price target of ₹320.2 is 12.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.