| Aditya Birla Capital Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 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 profitability.
In-line with the Reserve Bank of India (RBI) measures for Covid-19, ABCL group had given moratorium to its borrowers. While collection efficiency was impacted during the initial months of the moratorium, they have inched up since then and had reached the pre-covid levels for most of the asset classes. However, the second wave of the pandemic has resulted in intermittent lockdowns and localised restrictions, which could lead to some delay in collections in the coming months following the impact on the underlying borrower cash flows. Further, any change in the behaviour of borrowers on payment discipline can affect delinquency levels.
While overall gross stage three assets decreased in fiscal 2021, there was an increase in delinquencies in the retail and unsecured small and medium enterprises (SME) asset classes. Under the RBI August 2020 resolution framework for Covid-19-related stress, the group invoked restructuring on around 2.6% of its lending portfolio. The ability of the group to manage collections and asset quality during the second wave of the pandemic will remain a key monitorable. |
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
ABG holds 70.70% of ABCL's equity shares via promoters and the promoter group companies as of March 31, 2021 with Grasim being the majority shareholder holding 54.21% stake as on same date. 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 48,689 crore as on March 31, 2021. 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 (commenced in October 2014) and had a loan book of Rs 11,869 crore as on March 31, 2021.
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 9.2% and domestic AUM of Rs 2,69,278 crore as on March 31, 2021. 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 15,227 crore as on March 31, 2021 (Rs 13,985 crore as on March 31, 2020). In the lending business, both ABFL and ABHFL remain comfortably capitalised with total capital adequacy ratio of 22.8% and 21.7%, respectively, as on March 31, 2021 (18.9% and 18.7% a year earlier), and gearing of 4.7 times and 7.0 times, respectively (5.4 times and 8.4 times). ABCL's consolidated gearing, at 3.5 times as on March 31, 2021, is expected to be 5.0-5.5 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 three assets of 12.4 times and 11.0 times for ABFL and ABHFL, respectively, as on March 31, 2021. 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 0.9% and 7.7%, respectively, for fiscal 2021. This is contributed by some of the businesses in the nascent stage - housing finance has turned profitable only from the second quarter of fiscal 2018 and health insurance is loss-making. ABFL, which contributes a high share of the ABCL group’s earnings, witnessed a marginal dip of 4% in profits during fiscal 2021 and reported a RoA of 1.5%. While NIMs increased during fiscal 2021, supporting ABFL’s profitability, credit costs continued to be on the higher side. This was also attributed to Covid-19 related provisions as well as higher provisioning coverage of 45% as on March 31, 2021, compared to 34% previous fiscal. With diversification in lending book and scale up in newer businesses, ABCL’s profitability is expected to gradually improve over the medium term |
Liquidity: Strong ABCL, on a standalone basis, had cash and equivalents worth Rs 301 crore as on March 31, 2021. 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 March 31, 2021.
In the lending business, the group maintains adequate cash and equivalents and unutilised bank lines, totalling to Rs 11,934 crore as on March 31, 2021, to cover upcoming debt repayment of Rs 9,000 crore till September 30, 2021. While the structural asset and liability management statement for ABFL and ABHFL had negative cumulative mismatches in buckets up to 1 year as on March 31, 2021, the same were well-managed by the presence of unutilised bank lines. The companies also benefit from linkages with ABG. |
Rating Sensitivity 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, 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 businesses. The group has more than 22,500 employees and a nation-wide reach through 861 branches and more than 200,000 agents/channel partners.
ABCL reported profit after tax (PAT) of Rs 1,127 crore on total income of Rs 19,274 crore in fiscal 2021, against Rs 920 crore and Rs 16,709 crore, respectively, for the previous fiscal.
On standalone basis, ABCL reported PAT of Rs 73 crore on total income of Rs 109 crore for fiscal 2021, against PAT of Rs 30 crore on total income of Rs 201 crore for the previous fiscal. |
Key Financial Indicators (ABCL; Consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
*Equity accounting |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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