Motilal Oswal Financial Services has issued a forthright BUY recommendation on Aditya Birla Capital Limited (“ABCL”), setting a robust target price of Rs 340 with a pointed expectation of 20% upside from current levels. ABCL, an NBFC and diversified financial powerhouse, is undergoing strategic evolution marked by digital prowess, heightened retail focus, and capital discipline. The report highlights astute management moves including tightening risk standards, expanding retail channels, and a prudent sector mix. Investors are advised that ABCL’s innovative architecture and improving asset quality are pivotal for sustaining growth.

Motilal Oswal maintains a firm BUY stance on ABCL, with a one-year target price of Rs 340, reflecting a 20% upside from its current quoted price of Rs 284. The research underscores ABCL’s transformation into a digitally powered, customer-first enterprise. Its recalibrated focus on high-margin retail and MSME segments, backed by innovations like the ABCD App and *Udyog Plus*, authenticates its retail-led growth narrative. The strategic merger of Aditya Birla Finance into ABCL augments balance sheet strength, positioning the company to post a 26% CAGR in profit after tax (pre-minority interest) between FY25–FY27. By FY27, consolidated RoE is expected to touch 14%, further cementing shareholder confidence.

Key Investment Highlights

1. Digitally Engineered Growth
ABCL’s digital arsenal is its most pressing catalyst. Its omni-channel platforms have amassed 6.4 million customers, with management intent on lifting that tally to 30 million by 2027. Cross-selling across insurance, lending, and asset products now relies heavily on these scalable platforms, dramatically cutting customer acquisition costs.

2. Asset Quality and Credit Discipline
The company is deliberately derisking its loan book by tightening credit filters, particularly trimming unsecured exposure. Its 30-day past due portfolio improved 75 basis points YoY to 3.7% in June 2025—outclassing many peers in the NBFC universe.

3. Retail & MSME Lending Pillars
Retail and MSMEs are now commanding the lion’s share of growth. As of June 2025, nearly half of MSME exposures are secured, with unsecured lending confined to a mere 1.3% of loans. This balance offers stability without forgoing growth momentum.

Stock Levels and Valuations

Segmental Business Drivers

1. NBFC: Expanding Securely
ABCL’s NBFC arm has doubled its AUM within three years. With 74% of the portfolio secured, margin expansion is seen as sustainable. Funding costs are set to moderate, aided by a declining interest rate environment, and credit costs are forecasted at a manageable 1.3–1.4%.

2. Housing Finance: Digital-Led Balance
The housing finance subsidiary is achieving simultaneous growth in prime and affordable housing categories. Asset quality has improved remarkably—delinquencies (30-day overdue) at 1.35% in June 2025 versus 2.65% a year earlier.

3. Asset Management: Retail Penetration Rises
With Rs 4.43 trillion in AUM, the AMC unit has emerged as a strong franchise, aided by its 6.2% mutual fund market share. The focus is on expanding passive offerings, ETFs, and offshore distribution.

4. Insurance: Market Leadership Gains
Aditya Birla Life Insurance saw new premium uptake of Rs 41.1 billion (+34% YoY). Its health insurance sibling, after 8 years of gestation, turned profitable while growing GWP by 33%. The group’s composite insurance play is gaining faster than industry averages.

Financial Strength and Investor View

1. Consolidated Earnings Power
PAT CAGR of 26% over FY25–27 is underpinned by higher yields in retail assets and cost controls driven by technology leverage. Expected RoE of 14% signals efficient capital deployment.

2. Balance Sheet Firepower
The merger of Aditya Birla Finance with the parent structure ensures better capitalization, easing growth into capital-intensive domains like housing finance and insurance.

3. Cross-Selling Ecosystem
ABCL is uniquely embedded within the Aditya Birla Group ecosystem, enabling it to deepen customer engagement via multiple financial propositions. This level of ecosystem leverage is creating superior operating leverage.

Strategic Risks and Headwinds

1. Credit Market Shifts
Even as secured exposures dominate, vigilance is critical in MSME and unsecured lending. The government’s partial guarantee programs provide a cushion, yet tail risks cannot be ignored.

2. Regulatory Watchpoints
The regulatory outlook on NBFC capital structures and insurance pricing could temporarily weigh on expansion. However, ABCL’s diversified model and investment in compliance frameworks offer buffers.