Aditya Birla Capital (ABC) is set to merge with its wholly-owned subsidiary arm Aditya Birla Finance Ltd (ABFL) on which shares of the financial services company picked an uptrend rising almost four per cent to hit an intra day high of ₹190.65 earlier today. Domestic brokerage firm JM Financials has reiterated its ‘buy’ rating on the Aditya Birla Group stock and sees a potential upside of 33 per cent at a revised target price of ₹240 in the 12 months from current levels.
The brokerage has raised its TP on the stock by 9.1 per cent compared to its earlier target of ₹220 saying that the subsidiary merger will be a positive for the holding company. The merger deal will help the unlisted subsidiary ABFL to skip the public-listing requirement ordered by the Reserve Bank of India (RBI).
Also Read: Aditya Birla Capital, subsidiary Aditya Birla Finance to merge
Aditya Birla Capital stock: Brokerage hikes TP by 9%, sees 33% upside
JM Financials said in its report, ‘’We believe that the scheme would offer key positives which include: a) simplified operations, b) elimination of holding company discount since ABFL was mandated to be listed by September 2025 as per NBFC-UL guidelines, and c) aBSEnce of separate listing costs of ABFL. This also increases CRAR by ~150bps as such postpones the potential need to raise growth capital versus earlier scenario.”
‘’We revise our target price upward to ₹240 (from earlier ₹220) resulting from removal of 15 per cent holding company discount which we had applied on ABFL entity on our previous target price. Maintain BUY,” said JM Financials.
On Tuesday, shares of ABC opened at ₹184.60 and gained around four per cent to hit an intra day high of ₹190.65 against a 52-week high of ₹199.40 apiece on the BSE. For the nine months ended December 31, 2023, the company had a turnover of ₹191.9 crore a net worth of ₹13,306.87 crore.
Aditya Birla Capital merger with Aditya Birla Finance
ABFL is among the 15 upper-layer non-bank lenders mandated by the RBI to go public by September 2025. A merger with the listed parent averts the need for the subsidiary to be separately listed. Besides, ABC also said that the proposed merger will simplify the group’s structure and transform it into an operating non-banking finance company (NBFC) from a holding company,
The deal will also consolidate business and operational synergies, and reduce regulatory complexities. “The proposed amalgamation will create a strong capital base for Aditya Birla Capital to grow its business and participate in India’s growth story, successfully fulfilling its commitment to empower the financial aspirations of millions of Indians,” Kumar Mangalam Birla, chairman of the Aditya Birla Group, said in a statement.
Birla added that the financial services sector is the bedrock of India’s growth story. “Our financial services business has scaled smartly to emerge as a core growth engine for the Aditya Birla Group,” he said. ABC said that that the amalgamation is subject to regulatory approvals. Following the merger, ABFL will be dissolved without being ‘wound up’.
‘’The process will result in transfer and vesting of all assets, liabilities and entire business of ABFL with ABC which would take ~9-12 months. Upon the scheme becoming effective, equity investment in ABFL by ABC (which stands at ₹7,000 crore) shall stand cancelled. There will be no change in shareholding, management and/or control of ABC,” said JM Financials in its report.
Vishakha Mulye, CEO, ABC, told analysts on Monday that after the completion of the amalgamation, the assets and liabilities and the entire business of ABFL will be transferred to ABC. “There will be no issuance of new shares, hence there will be no change in the shareholding of ABC,” said Mulye. Mulye will lead the combined entity, with Rakesh Singh, current CEO of Aditya Birla Finance, assuming the role of executive director and CEO (NBFC), subject to approvals.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 12 Mar 2024, 08:41 PM IST