Rating Rationale
June 29, 2020 | Mumbai
Aditya Birla Capital Limited
Rating Reaffirmed
 
Rating Action
Rs.300 Crore Commercial Paper (Reduced from Rs.2700 Crore) CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL 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. As per the company's request, CRISIL has reduced the quantum of rated commercial paper to Rs 300 crore from Rs 2,700 crore.
 
The rating factors in the expectation of strong support to ABCL from its parent, 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). This is based on Grasim's majority ownership in ABCL and the importance of the financial services business to ABG. The ratings also factor in the diversified presence of ABCL across the financial services space and its comfortable capitalisation. These strengths are partially offset by average profitability.
 
The nationwide lockdown imposed from March 25 till May 31, 2020, declared by the Government of India to contain the spread of Covid-19 has impacted disbursements and collections of companies. Any delay in return to normalcy will exert further pressure on collections and asset quality metrics of non-banking financial companies (NBFCs). Additionally, any change in the behaviour of borrowers on payment discipline can affect delinquency levels.
 
On the liability side, Reserve Bank of India announced regulatory measures under 'Covid-19 - Regulatory Package', whereby lenders were permitted to grant moratorium on bank loans. However, CRISIL understands that the ABCL group has not sought moratorium from any of its lenders and continues to service its debt obligations as per schedule.
 
On the asset side, the group has offered moratorium to its borrowers and hence, the collections are expected to be impacted till August 31, 2020. Nevertheless, ABCL (consolidated) has comfortable liquidity to meet debt obligations during this period.
 
ABCL, through its lending entities operates in diversified retail and corporate segments, wherein some segments may witness challenges with income streams being affected by the lockdown. Of the various retail segments that the ABCL group caters to, segments like unsecured small and medium enterprises (SME) and retail loans are expected to be the most impacted by the lockdown. Whereas, salaried home loans could be least affected. Further, the wholesale portfolio continues to form a sizeable share of overall portfolio, albeit decreasing. Hence, asset quality will remain a monitorable given the current difficult macro environment.

Analytical Approach

For arriving at its ratings, CRISIL 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 has also factored in the strong support from the parent, Grasim, given the strategic importance of the financial services business to the parent. Further, Grasim is the majority shareholder of ABCL, with a shareholding of 54% as on March 31, 2020.

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:
Strengths
* Strategic importance to, and expectation of strong support from, the parent and benefits derived from being part of ABG
Grasim is the majority shareholder and directly owns 54.24% of ABCL's equity shares, with another 16.24% owned by other promoters and the promoter group. ABCL is the group's holding company for financial services, and remains critical, given the growth opportunities in this sector. Hence, Grasim provides strategic oversight to the group and has key personnel from its senior management on ABCL's board, including the chairman. 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.
 
Furthermore, ABG continues to provide 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). Capital support from the parent, along with internal cash accrual, is expected to keep capitalisation of the ABCL group comfortable. CRISIL believes Grasim would continue having majority ownership in ABCL, and financial services will remain the key focus area for Grasim and 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 businesses. ABCL also has presence in securities broking, wealth management, private equity, and insurance broking. The group has successfully scaled up and gained leading market positions in business segments such as lending (ABFL), asset management and life insurance.
 
ABCL has a strong market position in the lending business with ABFL being among the larger diversified NBFCs with assets under management (AUM) of Rs 47,057 crore as on March 31, 2020. ABFL offers various products such as loan against properties, 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 entered the housing finance business (commenced in October 2014) and had a loan book of Rs 12,102 crore as on March 31, 2020.
 
ABCL also has strong presence in the asset management business through Aditya Birla Sun Life AMC. It is the fourth largest asset management company (AMC) in India (excluding exchange-traded funds [ETF]) with market share (excluding ETF) at 9.3% and domestic AUM of Rs 2,51,310 crore as on March 31, 2020. 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 has recently also set up an asset reconstruction company.
 
* Comfortable capitalisation
ABCL has comfortable capitalisation, with an absolute networth (on a consolidated basis) of Rs 13,895 crore as on March 31, 2020 (Rs 10,670 crore as on March 31, 2019). In the lending business, both ABFL and ABHFL remains comfortably capitalised with total capital adequacy ratio of 18.81% and 18.74%, respectively, as on March 31, 2020 (17.5% and 16.8% a year ago), and gearing of 5.2 times and 8.3 times, respectively (5.8 times and 8.3 times). Also, Aditya Birla Sun Life Insurance remains adequately capitalised for the current and proposed scale of operations. ABCL's consolidated gearing is expected to remain around 5-5.5 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 3 assets of 7.1 times and 13.8 times for ABFL and ABHFL, respectively, as on March 31, 2020. 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 profitability
ABCL's standalone revenue primarily comprises dividend income from its asset management and insurance broking businesses. 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. However, return on assets and return on equity remain average at 0.8% and 7.5%, respectively, for fiscal 2020. ABFL, which contributes a high share of the ABCL group's earnings, has seen a dip in profitability due to higher credit costs (related to large ticket slippages and Covid-19-linked additional provisions). Further, some of the businesses that are in the nascent stage are reporting low profits; health insurance is loss-making and housing finance has turned profitable only from the second quarter of fiscal 2018. ABCL's profitability is expected to remain average over the medium term owing to expectation of higher slippages led by impact of the pandemic.
Liquidity Strong

ABCL, on a standalone basis, had cash and cash equivalents worth Rs 392 crore as on May 31, 2020. Liquidity remains supported by dividend income from operating subsidiaries and high flexibility to raise funds from the market driven by strong brand name of ABG. Nevertheless, borrowings were nil as on May 31, 2020.
 
In the lending business, the group maintains adequate cash and cash equivalents and unutilised bank lines, totalling to Rs 11,510 crore as on May 31, 2020, to cover upcoming debt repayment of Rs 5,545 crore till September 2020. While the structural asset and liability management statement for ABFL as on April 30, 2020, had no negative mismatches in buckets up to 1 year, the statement for ABHFL, as on same date, had cumulative negative mismatches, as seen for peers in this industry. However, the same was well-managed by presence of unutilised bank lines. The companies also benefits from the linkages with ABG.

Rating Sensitivity factors
Downward factors
* Downward change in the credit risk profile of Grasim
* Any material change in the shareholding by or support derived from Grasim
* Deterioration in capitalisation levels, with gearing (on consolidated basis) going above 6.0-6.5 times on a steady-state basis.
About the Company

ABCL is the financial services businesses platform of ABG. The company has been registered with Reserve Bank of India 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, private equity, asset reconstruction, corporate lending, structured finance, project finance, general insurance broking, wealth management, security broking, online personal finance management, housing finance, pension fund management and health insurance business. The group has more than 18,000 employees and a nationwide reach through over 850 branches and more than 2,00,000 agents/channel partners.
 
ABCL reported profit after tax (PAT) of Rs 920 crore on total income of Rs 16,810 crore in the fiscal 2020, against Rs 871 crore and Rs 15,172 crore, respectively, for the previous fiscal.
 
On standalone basis, ABCL reported PAT of Rs 30 crore on total income of Rs 201 crore for fiscal 2020, against loss of Rs 10 crore on total income of Rs 178 crore for the previous fiscal.

Key Financial Indicators - (ABCL Consolidated)
As on / for the year end   2020 2019
Total Assets Rs crore 113769 109692
Total income Rs crore 16810 15172
PAT Rs crore 920 871
Gross NPA (ABFL) % 3.6 1.5
Gross NPA (ABHFL) % 1.2 0.7
Return on assets % 0.8 0.9
Gearing Times 4.0 5.4
 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding
with Outlook
NA Commercial Paper NA NA 7-365 Days 300.0 Simple CRISIL A1+
 
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rational for consolidation
Aditya Birla PE Advisors Pvt Ltd Full Subsidiary
ABCAP Trustee Co Pvt Ltd Full Subsidiary
Aditya Birla Financial Shared Services Ltd Full Subsidiary
Aditya Birla Trustee Co Pvt Ltd Full Subsidiary
Aditya Birla Insurance Brokers Ltd Full Subsidiary
Aditya Birla Money Mart Ltd Full Subsidiary
Aditya Birla Money Insurance Advisory Services Ltd Full Subsidiary
Aditya Birla Sun Life Trustee Pvt Ltd Partial* Joint Venture
Aditya Birla Wellness Pvt Ltd Partial* Joint Venture
Aditya Birla Health Insurance Co Ltd Full Subsidiary
Aditya Birla ARC Ltd Full Subsidiary
Aditya Birla Stressed Asset AMC Pvt Ltd Full Subsidiary
ABCSL ' Employees Welfare Trust Full Subsidiary
ABARC-AST-001-Trust Full Subsidiary
Aditya Birla Sun Life AMC (Mauritius) Ltd Partial* Joint Venture
Aditya Birla Sun Life Asset Management Co Pte Ltd, Singapore Partial* Joint Venture
Aditya Birla Sun Life Asset Management Co Ltd, Dubai Partial* Joint Venture
Aditya Birla Sun Life AMC Ltd Partial* Joint Venture
Aditya Birla Sun Life Insurance Co Ltd Full Subsidiary
Aditya Birla Sun Life Pension Management Ltd Full Subsidiary
Aditya Birla Housing Finance Ltd Full Subsidiary
Aditya Birla Finance Ltd Full Subsidiary
Aditya Birla Capital Technology Services Limited (formerly known as Aditya  Birla MyUniverse Limited) Full Subsidiary
Aditya Birla Special Situation Fund - 1 Full Subsidiary
Aditya Birla Money Ltd Full Subsidiary
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  300.00  CRISIL A1+      28-06-19  CRISIL A1+  04-06-18  CRISIL A1+  26-12-17  CRISIL A1+  -- 
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Securities Companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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