| Aditya Birla Capital Limited | ||
| Rated amount enhanced | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper of Aditya Birla Capital Limited (ABCL; holding company of the ABCL group). The ABCL group includes ABCL and its subsidiaries and associates.
The rating factors in the strong parentage of Grasim Industries Ltd (Grasim; ‘CRISIL AAA/Stable/CRISIL A1+’), and the benefits the company derives from being a part of the Aditya Birla group (ABG) and expectation of support. This is based on majority ownership in ABCL of ABG (including Grasim) and the importance of the financial services business to ABG. The rating also factors in the diversified presence of ABCL across the financial services space and its comfortable capitalisation. These strengths are partially offset by average, albeit improving, profitability. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of ABCL and its subsidiaries and associates, since they have significant operational and management linkages, and operate under a single brand, Aditya Birla Capital. CRISIL Ratings has also factored in the strong parentage of ABCL, by ABG (including Grasim) and benefits from the same, given the strategic importance of the financial services business.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Benefits from strong parentageABG holds 71.05% of ABCL's equity shares via promoters and the promoter group companies as of December 31, 2022 with Grasim being the majority shareholder holding 54.17% stake. Further, ABCL is the holding company for financial services, and remains critical, given the growth opportunities in this sector. Hence, there is strategic oversight provided to ABCL group, including having key personnel from group’s senior management on ABCL’s board. ABCL also benefits from being a part of ABG, in terms of synergies derived from various businesses and cross-selling opportunities to the entire ABG ecosystem.
ABG (including Grasim) has provided capital support to the ABCL group; of the Rs 2,100 crore capital raised by ABCL in fiscal 2020, ABG infused Rs 1,000 crore (of which Rs 770 crore was by Grasim). Considering ABCL’s flexibility to raise capital, along with internal cash accrual, capitalisation of the ABCL group is expected to remain comfortable. CRISIL Ratings believes ABG (including Grasim) would continue having majority ownership in ABCL. Financial services will remain the key focus area for ABG over the medium term.
Diversified presence in the financial services space ABCL is the holding company for the financial services business of ABG and holds majority stake in various subsidiaries, which operate mainly in the commercial and retail finance, housing finance, asset management, and life and health insurance segments. ABCL also has presence in securities broking, wealth management and insurance broking. The group has successfully scaled up and attained market leadership positions in business segments such as lending, asset management and life insurance.
ABCL has a strong market position in the lending business with Aditya Birla Finance Ltd (ABFL) being among the larger diversified non-banking finance companies (NBFCs) with assets under management (AUM) of Rs 72,994 crore as on December 31, 2022. ABFL offers various products such as loan against property, personal loans, business loans, project loans, and working capital loans to customers ranging from retail, high networth individuals (HNIs), ultra HNI, SMEs, to mid and large corporates. Through Aditya Birla Housing Finance Ltd (ABHFL), ABCL is present in the housing finance business and had a loan book of Rs 12,874 crore as on December 31, 2022.
ABCL also has strong presence in the asset management business through Aditya Birla Sun Life AMC. It is one of the largest asset management company (AMC) in India with Mutual Fund AUM of Rs 2.82 lakh crore as on December 31, 2022. ABCL (through Aditya Birla Sun Life Insurance) also has a meaningful presence in the life insurance business and is a leading private sector life insurance company in India. Through its securities broking entity Aditya Birla Money Ltd (‘CRISIL A1+’), ABCL offers a wide range of solutions including broking, portfolio management services, and depository services. ABCL also provides health insurance business through Aditya Birla Heath Insurance and has a unique business model of providing health insurance with active customer engagement for driving healthy behaviour and managing customer experience. ABCL is also present in stressed assets space via its asset reconstruction company.
Comfortable capitalisation ABCL has comfortable capitalisation, with an absolute networth (on a consolidated basis; including minority interest) of Rs 18,031 crore as on September 30, 2022 (Rs 17,091 crore as on March 31, 2022). In the lending business, both ABFL and ABHFL remain comfortably capitalised with total capital adequacy ratio of 17.5% and 23.7%, respectively, as on December 31, 2022 (23.1% and 24.4% a year earlier), and gearing of 5.8 times and 5.8 times, respectively (4.3 times and 6.2 times as on March 31, 2022). ABCL's consolidated gearing, at 5.7 times as on December 31, 2022, is expected to be ~6 times over the medium term.
ABCL is also adequately capitalised to absorb asset-side risks in the lending business, as indicated by networth coverage to net stage three assets of 9.4 times and 6.3 times for ABFL and ABHFL, respectively, as on December 31, 2022. The capital position was strengthened by Rs 2,100 crore capital raised during fiscal 2020, wherein Rs 1,000 crore was infused by ABG and remaining Rs 1,100 crore by external investors. ABCL's capitalisation is likely to remain comfortable, considering its flexibility to raise capital, also supported by internal accrual.
Weakness: Average, albeit improving, profitability ABCL’s standalone revenue primarily comprises dividend income from its asset management and insurance broking businesses, with ABFL also paying dividend starting fiscal 2022. At a consolidated level, earnings of the ABCL group remain well-diversified across lending, insurance, and AMC businesses, resulting in a good mix of fund-based and fee-based revenue. During the nine months ended fiscal 2023, return on assets (ROA) and return on equity (ROE) excluding one-time impact of Rs 2,739.07 crore from sale of stake in Aditya Birla Health Insurance were at 1.2% and 10.2% respectively, in line with 1.3% and 10.6%, respectively, for fiscal 2022. ABFL, which contributes a high share of the ABCL group’s earnings, witnessed an improvement in RoA to 2.2% for nine months ended fiscal 2023 from 2.1% fiscal 2022. This was on account of lower credit costs and shift in portfolio towards retail, HNI and SME segments, leading to higher yields.
ABHFL reported an RoA of 1.9% for quarter ended December 2022. Overall on consolidated levels provisioning coverage ratio also remained comfortable at 47% as on December 31, 2022. With diversification in lending book and scale up in newer businesses, ABCL’s overall profitability is expected to gradually improve over the medium term. |
Liquidity: Strong ABCL, on a standalone basis, had cash and equivalents worth Rs 249 crore as on February 28, 2023. Liquidity remains supported by dividend income from operating subsidiaries and high flexibility to raise funds from the market driven by the strong brand name of ABG. Nevertheless, borrowings were nil as on December 31, 2022.
In the lending business, the group maintains adequate cash and equivalents and unutilised bank lines, totalling to Rs 10,223 crore as on December 31, 2022, to cover upcoming debt repayment of Rs 14,716 crore till June 30, 2023. While the structural asset and liability management statement for ABFL and ABHFL had negative cumulative mismatches in buckets up to 1 year as on December 31, 2022, the same were well-managed by the presence of unutilised bank lines. The companies also benefit from linkages with ABG.
ESG Profile CRISIL Ratings believes that ABCL’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.
The ESG profile of financial institutions typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base, and it can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on environment and other sustainability related factors.
ABCL has demonstrated an ongoing focus on strengthening various aspects of its ESG profile.
ABCL’s key ESG highlights:
There is growing importance of ESG among investors and lenders. ABCL’s commitment to ESG will play a key role in enhancing stakeholder confidence, given high share of foreign investors as well as access to both domestic and foreign capital markets. |
Rating Sensitivity Factors Downward Factors
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About the Company ABCL is the financial services businesses platform of ABG. The company has been registered with the RBI as a systematically important, non-deposit-taking, core-investment company. ABCL provides end-to-end financial services to both retail and corporate customers and has a presence across life insurance, asset management, asset reconstruction, corporate lending, personal & consumer lending structured finance, project finance, general insurance broking, wealth management, security broking, online personal finance management, housing finance, pension fund management and health insurance businesses. Aditya Birla group has more than 140,000 employees and a nation-wide reach through 1220 branches and more than 200,000 agents/channel partners.
ABCL reported profit after tax (PAT) of Rs 1,706 crore on total income of Rs 22,241 crore in fiscal 2022, against Rs 1,127 crore and Rs 19,274 crore, respectively, for the previous fiscal. The PAT for December 31, 2022 was Rs 4187 crore which included a one time stake sale of Rs 2,739.07crore on total income of Rs 22,094 crore
On standalone basis, ABCL reported PAT of Rs 345 crore on total income of Rs 454 crore (including one-time income of Rs 196 crore) for fiscal 2022, against PAT of Rs 73 crore on total income of Rs 109 crore for the previous fiscal. Subsequently, the PAT for December 31, 2022 was Rs 64 crore on total income of Rs 111 crore |
Key Financial Indicators (ABCL Consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
*Equity accounting #Subsidiary upto October 20, 2022 post that it is a joint venture |
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Criteria Details
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