Aditya Birla Capital Limited — Q3 FY25 earnings call

Call held 3 Feb 2025

Management summary

Aditya Birla Capital reported a robust Q3 FY25 with strong growth across its lending and asset management businesses, despite a challenging macro-economic environment. While consolidated PAT saw a slight YoY decline, key segments like NBFC and HFC demonstrated significant portfolio expansion and improved asset quality. The company continued its focus on digital transformation and omnichannel distribution, with strategic initiatives like the amalgamation of Aditya Birla Finance progressing towards completion.

Highlights

  • Total consolidated revenue grew 10% YoY to ₹10,949 crores.

  • NBFC loan portfolio grew 21% YoY to ₹1.19 trillion, and PAT grew 5% YoY to ₹600 crores, with RoA at 2.10% and RoE at 13.87%.

  • HFC loan portfolio grew 62% YoY to ₹26,714 crores, achieving all-time high disbursements of ₹4,750 crores (136% YoY, 18% QoQ).

  • HFC Gross NPA reduced to 0.99%, the lowest in 15 quarters, and Stage 2 & 3 loans declined by 177 bps YoY to 1.77%.

  • AMC average AUM grew 23% YoY to ₹3.83 trillion, with PAT up 7% YoY to ₹224 crores.

  • Life Insurance individual first year premium grew 31% YoY in 9M FY25, and Group New Business Premium grew 32% YoY in 9M.

  • Health Insurance gross written premium grew 39% YoY in 9M FY25, increasing market share among SAHIs by 140 bps YoY to 12.0%.

  • Health Insurance combined ratio improved from 121% in 9M FY24 to 114% in 9M FY25, and net loss improved to ₹195 crores from ₹270 crores last year.

Concerns

  • Consolidated profit after tax declined 3.8% YoY to ₹708 crores from ₹736 crores in Q3 last year.

  • NBFC personal and consumer loans segment saw a slowdown in growth to 13.8% YoY in H1 FY25, leading to calibrated growth.

  • Life Insurance Net Margins for 9M FY25 were 10.8%, lower than 15.6% in the prior year, partly due to new surrender regulations and G-Sec rates.

Key financials

  1. Consolidated Revenue ₹10,949 Cr +10%YoY
  2. Consolidated PAT ₹708 Cr -3.8%YoY

What they filed

Q1 FY27: revenue up 24.4%, net profit up 32.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue4,158 3,792 3,853 4,010 4,507 +8%4,384 +16%4,572 +19%4,990 +24%
EBITDA3,718 3,505 3,795 3,850 4,001 +8%4,307 +23%— —
Net profit1,032 613 654 676 916 −11%740 +21%777 +19%893 +32%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • NBFC
    ₹1.19L Cr Loan Portfolio (AUM)₹600 Cr PAT2.1% RoA13.9% RoE6% NIM (incl. fee income)1.4% Credit Cost4.3% Gross Stage 2 & 3 Loans45.6% Gross Stage 3 PCR1.9% Opex to AUM Ratio31.2% Cost Income Ratio
  • Housing Finance (HFC)
    ₹26,714 Cr Loan Portfolio (AUM)₹4,750 Cr Disbursements₹110 Cr PBT1.4% RoA10.7% RoE0.99% Gross NPA1.8% Gross Stage 2 & 3 Loans2.8% Opex to Average Loan Book7.8% Cost of Borrowing (COB)
  • Asset Management (AMC)
    ₹4.00L Cr Overall Average AUM₹3.84L Cr Mutual Fund Average AUM₹1.79L Cr Equity Average AUM₹224 Cr PAT₹1,382 Cr SIP Book₹3,853 Cr PMS/AIF Assets₹12,686 Cr Offshore Assets₹445 Cr Q3 Revenue from Operations₹262 Cr Q3 Operating Profit
  • Life Insurance
    — Individual First Year Premium (9M FY25)— Group New Business Premium (9M FY25)10.8% VNB Margin (9M FY25)₹97,286 Cr AUM20.8% Opex to Premium194% Solvency
  • Health Insurance
    ₹3,337 Cr Gross Written Premium (9M FY25, long-term accounting norms)₹1,167 Cr Gross Written Premium (Q3 FY25, long-term accounting norms)12% Market Share (SAHI, 9M FY25)114% Combined Ratio (9M FY25)₹195 Cr Net Loss (9M FY25)

Capital allocation

high confidence
  • M&A Aditya Birla Finance Merger · Pending regulatory

    Amalgamation of Aditya Birla Finance with Aditya Birla Capital

    Our Board of Directors approved an amalgamation of Aditya Birla Finance with Aditya Birla Capital in March 2024, subject to regulatory and other approvals. We are happy to share that the proposed amalgamation has been approved by the shareholders in January. We have made an application before NCLT Ahmedabad and expect the amalgamation to get completed by March 31, 2025.
  • Liquidity Liquidity disclosed HFC infused equity capital of ₹300 crores in Q3 FY25, bringing cumulative infusion to ₹900 crores for the year. Life Insurance raised ₹311 crores via rights issue in Dec'24, with existing shareholders subscribing.
    During Q3 FY25 we further infused equity capital amounting to 300 crore Rupees in our HFC subsidiary taking the cumulative infusion during the year to 900 Crore Rupees. This infusion was done to support the growth momentum and maximize our share of opportunities which Vishakha mentioned earlier.

Guidance & targets

Profitability

  • Life Insurance VNB Margin Profitability · FY25 · High confidence 17-18%
    Our endeavour is to close FY25 with a VNB margin of about 17%-18%.

    — Kamlesh Rao

  • HFC ROA Post Tax Profitability · next 18 to 24 months · High confidence 2-2.1%
    the ROA post tax will be in the range of between 2% to 2.1%. That is the guidance, probably that we are working towards. And those numbers should get achieved between the next 18 to 24 months.

    — Pankaj Gadgil

  • NBFC ROA Profitability · medium term · Medium confidence 2.4-2.5%

    From 2.1% today

    So I think these are the 2 levers, which should help us to go from 2.1% to 2.4% to 2.5%.

    — Rakesh Singh

Efficiency

  • HFC Opex to Average Loan Book Efficiency · next 18 to 24 months · High confidence 1.6-1.7%

    From 2.8% today

    the current opex to average loan book, which is 2.8% is bound to get to in the range of somewhere between 1.6% to 1.7% in the next 18 to 24 months, which is about 110 to 120 basis points reduction.

    — Pankaj Gadgil

Portfolio Mix

  • NBFC Personal and Consumer Loans Share of AUM Portfolio Mix · medium term · Medium confidence 18-20%

    From 13% today

    We would like to grow it back to 18%, 20%, not immediately, but in the medium term.

    — Rakesh Singh

  • HFC Housing Loans Share of AUM Portfolio Mix · medium term · High confidence 53-55%

    From 58% today

    Because 50% is anyways the threshold. So we would want to remain in that 53 to 55% kind of a range.

    — Pankaj Gadgil

Asset Quality

  • NBFC Credit Costs Asset Quality · medium term · High confidence stable
    over a period of time, we will like to see that credit costs remain stable, margin expanding.

    — Rakesh Singh

What to watch in Q4 FY25

Life Insurance VNB Margin for FY25

FY25
Current 10.8% (9M FY25)
Target 17-18%

Why it matters

Verifying if the expected margin expansion in Q4 materializes to meet the full-year target, crucial for profitability.

Our endeavour is to close FY25 with a VNB margin of about 17%-18%.

Risks & concerns

  • Challenging Macro-economic Environment

    medium

    Moderating urban demand, tight liquidity, high capital market volatility, slow government/private capex, rupee depreciation, and food inflationary pressures.

    Management acknowledged

  • Regulatory Impact on Life Insurance Margins

    medium

    New surrender regulations and lower G-Sec rates impacted Q3 margins, but management expects full recovery and expansion in Q4.

    Management acknowledged

  • Regulatory Accounting Changes for Health Insurance

    low

    IRDAI guidelines on revenue recognition for long-term policies impact accounting financials in the short to medium term until IFRS migration, though unit economics remain unchanged.

    Management acknowledged

Q&A highlights

6 direct
HFC Growth Drivers and Sustainability Direct
I think over the last 18 months to 24 months, we have made investments in widening our distribution. So the number of people that are there in sales, operations and the entire structure has been strengthened quite meaningfully. That, of course, by creating capacity is leading to high disbursements.

Management detailed the multi-faceted strategy (distribution, digital, Finverse, ecosystem leverage) driving HFC's 62% YoY AUM growth, indicating sustainability.

Asked by Chintan Shah

NBFC PCR and Stage 2 Loans Trajectory Direct
So this PCR is quite stable. We have of 74% or about 3/4 of our loan book is secured by collateral, real estate collateral, securities, and all and that's the reason even in the unsecured business, we have CGTSME guarantee as well. So that's the reason our PCR looks very, very comfortable. ... But by end of Jan, we have been able to pull back all these loans which had become stage 2.

Management clarified that the PCR is stable due to a higher secured book mix and that the marginal QoQ increase in Stage 2 was already addressed by January end, allaying asset quality concerns.

Asked by Chintan Shah

NBFC ROA and Margin Compression Direct
First question was on ROA, come down to 2.1% from 2.4%, and that's primarily a result of the margin compression, which we spoke earlier. As we change the product mix and improve our disbursement and growth in personal and consumer and also the MSME unsecured, I think that margin expansion should happen. Also, if you look at the overall product mix at this point in time, almost 74%- 75% is secured. That should also help us at least in the near future in terms of bringing down the credit cost. So I think these are the 2 levers, which should help us to go from 2.1% to 2.4% to 2.5%.

Management explained the drivers for ROA decline (margin compression from product mix shift) and outlined the levers (margin expansion from personal/consumer/MSME unsecured growth, credit cost reduction from secured mix) to improve ROA to 2.4-2.5%.

Asked by Chintan Shah

Life Insurance Surrender Value Regulations Impact on Margins Partial
So there would have been some timing loss in that process in the quarter, which is like fully established right now for the quarter that we speak about, which should be in Q4. ... But for the second one, appropriate reduction in customer IRRs have been passed on again during the quarter. And again, there would have been some timing loss in that process in the quarter, which is like fully established right now for the quarter that we speak about, which should be in Q4.

Management acknowledged a 'timing loss' impact on Q3 margins due to new surrender regulations and G-Sec rates, but expects full margin expansion to reflect in Q4, indicating a temporary headwind.

Asked by Anuj Singla

NBFC Disbursements Deceleration and Consumer Loan Strategy Direct
De-growth is coming from personal and consumer segment, which is 47% down year-on-year. Again, quarter 4 will be better. So we should be able to catch up on disbursements. ... So clearly, that's how the strategy is to own the customer, own the journey and clearly end-to-end ownership of the customer and the journey.

Management attributed disbursement deceleration to calibrated personal/consumer loan growth and emphasized a strategy of direct customer ownership via branches, digital platforms (ABCD, Udyog Plus), and the ABG ecosystem.

Asked by Abhijit Tibrewal

ABCD App Credit Line on UPI Functionality Direct
What credit line UPI means is that currently, credit line on UPI is live with all the issuing banks. So if you are a customer and for your respective account, if a bank has given you a credit line on UPI, then when you are creating the UPI handle you can use it. ... Right now credit line on UPI is not there for NBFC. In time to come, we've also put in our request to NPCI to make sure that also gets done. When that happens, then that line could also be an ABFL line, which could make this complete in-house.

Management clarified the current and future capabilities of the ABCD app regarding UPI credit lines, highlighting the strategic intent to integrate ABFL's own credit lines once regulatory approvals are in place.

Asked by Abhijit Tibrewal

HFC Opex to AUM Reduction Target Direct
the current opex to average loan book, which is 2.8% is bound to get to in the range of somewhere between 1.6% to 1.7% in the next 18 to 24 months, which is about 110 to 120 basis points reduction.

Management provided a clear, quantified target and timeline for HFC's operating leverage to kick in, indicating significant efficiency improvements expected over the medium term.

Asked by Avinash Singh

2 min read 6 chapters

Detailed narrative

Overall Performance and Strategic Direction

Aditya Birla Capital reported a 10% YoY increase in total consolidated revenue to ₹10,949 crores for Q3 FY25, though consolidated PAT saw a slight decline of 3.8% YoY to ₹708 crores. The company continues to focus on quality and profitable growth, leveraging data, digital, and technology, while maintaining prudent risk management. Strategic initiatives include strengthening its omnichannel distribution network and the ongoing amalgamation of Aditya Birla Finance with Aditya Birla Capital, expected to complete by March 31, 2025.

NBFC Business Growth and Asset Quality

The NBFC loan portfolio expanded by 21% YoY and 4% sequentially to ₹1.19 trillion. PAT grew 5% YoY to ₹600 crores, with RoA at 2.10% and RoE at 13.87%. Asset quality remained robust, with Gross Stage 2 & 3 loans declining 60 bps YoY to 4.25% and Gross Stage 3 PCR at 45.6%. The company strategically calibrated its portfolio by reducing exposure to smaller unsecured personal loans and increasing secured business loans, which now constitute 74% of the overall portfolio.

Housing Finance Business Momentum

The HFC business demonstrated strong momentum, with its loan portfolio growing 62% YoY to ₹26,714 crores. Disbursements reached an all-time high of ₹4,750 crores, representing a 136% YoY and 18% QoQ increase. Asset quality improved significantly, with Gross NPA reducing to 0.99% (lowest in 15 quarters) and Stage 2 & 3 loans declining 177 bps YoY to 1.77%. The company infused ₹300 crores of equity capital in Q3, bringing the cumulative infusion to ₹900 crores for the year to support growth.

Asset Management Business Performance

The Asset Management business saw its overall average AUM grow 23% YoY to ₹4 lakh crores, with Mutual Fund average AUM also up 23% YoY to ₹3.84 lakh crores. Equity average AUM grew 32% YoY to ₹1.79 lakh crores. PAT for the quarter increased 7% YoY to ₹224 crores. The SIP book grew 38% YoY to ₹1,382 crores, adding approximately 6.70 lakh new SIPs, a 3x increase compared to the previous year.

Life and Health Insurance Growth

The Life Insurance business recorded a 31% YoY growth in individual first year premium for 9M FY25, with a VNB margin of 10.8%. The Health Insurance business continued to be the fastest-growing standalone health insurer, with gross written premium growing 39% YoY in 9M FY25 and market share increasing by 140 bps YoY to 12.0%. The combined ratio improved from 121% in 9M FY24 to 114% in 9M FY25, and net loss improved to ₹195 crores from ₹270 crores last year.

Digital and Omnichannel Initiatives

ABCL's D2C platform, ABCD, launched in April 2024, now offers over 24 products and services and has acquired more than 4.1 million customers. The B2B platform, Udyog Plus for MSMEs, has over 2.2 million registrations and contributes about 25% of disbursements in unsecured business loans. The B2D platform, Stellar, for channel partners, went live in January, enhancing distribution capabilities and customer engagement across 1,482 branches.

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