Target: ₹270
CMP: ₹215.45
In Jul’22, as Vishakha Mulye took charge as MD & CEO, AB Capital Limited (ABCL) reimagined its business model. ABCL has been focusing on building frictionless tech-enabled loan processes and leveraging its group-level ecosystem. In-line with this, during the past 18 months, the company has invested in upgrading its digital platform and expanding its distribution network.
ABCL’s ABCD app went live in Apr’24 (about 0.1 million registration) and would be one of the key engines driving new customer acquisition and retention. Cost-assets have peaked out at around 2.2 per cent in FY24 and will likely moderate over the next two years for ABFL. It expects AUM growth at over 25 per cent over FY24–26 with share of unsecured portfolio steady at current levels of 27 per cent.
ABFL RoA may expand 25–30bps to 2.7-2.8 per cent by FY26 from its current level of 2.4 per cent driven by NIM expansion, operating leverage and steady credit cost at 1.5 per cent.
We maintain BUY on ABCL with a SoTP-based revised TP of ₹270, (earlier: ₹220) valuing ABFL at 2.1x FY26E BV and ABHFL at 1.5x FY26E BV. Proposed group restructuring (amalgamation of ABFL and ABCL) would likely eliminate capital leakage; consequently, will not attract hold-co discount going ahead. Key risk is slower-than-anticipated loan book growth and stress unfolding higher-than- anticipated, primarily from unsecured segments.