Aditya BirIa Capital Limited (ABCL) announced on Thursday that it has received approval from its Board of Directors to raise primary equity capital of Rs 2,100 crore through a preferential allotment to certain marquee investors and the promoter as well as promoter group entities. This approval is subject to the requisite statutory and regulatory approvals, including that of the shareholders, ABCL said in a regulatory filing. The board also decided to convene an extraordinary general meeting of shareholders on October 5.
ABCL is the holding company of the financial services businesses of the $48.3 billion Aditya Birla Group. The equity capital will be raised at Rs 100 per share, which is at a 10.62 per cent premium to the ABCL closing price of Rs 90.40 as of September 4, the company said in a statement, adding that it has ABCL has signed definitive share subscription agreements with Jomei Investments Limited, an affiliate of Advent International, and PremjiInvest's affiliate PI Opportunities Fund.
While Jomei Investments will plough in Rs 1,000 crore for 10 crore fully paid-up equity shares, PremjiInvest, the family investment arm of Wipro, will pump in Rs 100 crore. The company will also raise Rs 770 crore from its promoter, Grasim Industries, as "confidence capital" along with Rs 230 crore from three promoter group entities, namely Surya Kiran Investments Pte Limited, IGH Holdings Private Limited and Pilanl Investment and Industries Corporation Limited. "This is in proportion of their respective inter-se shareholding in ABCL," the statement added.
On completion of the issuance, the promoter and group entities will hold about 70.54 per cent in ABCL. Meanwhile, Advent International will hold a stake of approximately 4.15 per cent, making it the largest non-promoter shareholder, The Economic Times reported. Advent International, one of the largest global private equity investors, boasted $36 billion in assets under management at the end of the last fiscal and has recently raised $17.5 billion for its ninth global fund. PremjiInvest through its affiliate will own a 4.11 per cent of ABCL's equity capital.
This development comes two years after ABCL's listing on September 1, 2017, after a group reorganisation. While Aditya Birla Nuvo merged with Grasim Industries, the financial services business was hived off and brought under Aditya Birla Capital. Since its listing, the stock is down over 60 per cent and closed Thursday at Rs 91.45 for a market value of Rs 20,135.32 crore. It is currently trading at Rs 93 apiece on the BSE.
According to the company, the funds raised will be utilised to fund the future growth of the company's businesses as well as to repay outstanding debt. "The premium that we are getting in the valuation is a validation of the inherent strength of our franchise from a pedigreed global institutional investor," ABCL CEO Ajay Srinivasan, told the daily. He added that this recapitalisation infusion will offer growth equity for our business for the next 18-24 months. Of the total Rs 2,100 crore, around 50 per cent will be used for refinancing, while the rest is expected to help expand lenders Aditya Birla Finance and Aditya Birla Housing Finance Ltd besides Aditya Birla Health Insurance Ltd.
ABCL has aggregate average assets under management across asset management and insurance businesses of over Rs 3 lakh crore, a lending book of Rs 62,000 crore across its non-banking and housing finance businesses, and gross written premium of over Rs 8,000 crore. "We believe that there is an exciting opportunity to invest into the financial services sector," said Advent International Managing Director and Head of India Shweta Jalan. According to her, with the significant correction in valuations, this is an ideal time to enter the NBFC space. "There is a clear flight towards quality and scale that is happening across financial services. Liquidity is the key factor that will separate one from the pack and help stand out," she explained, adding that ABCL's Birla parentage "ensures that liquidity will not be a challenge".
ABCL operates across four key verticals - insurance, lending, asset management and advisory - and according to experts, there are multiple growth drivers in place for each business, be it in terms of expanding distribution or retail penetration, which is good news on the earnings front. ABCL reported better-than-expected results for the first quarter of the current fiscal in August. As per its unaudited financial results, consolidated revenue grew 16 per cent year-on-year to Rs 3,962 crore while consolidated profit after tax (after minority interest) reflected a growth of 27 per cent to Rs 270 crore for the June quarter. While growth softened below trend, the focus on profitability and steady asset quality reportedly helped sustain profitability.
Srinivasan is confident that ABCL will continue to gain market share while staying cautious, despite the macroeconomic headwinds buffeting the financial sector. "There is consolidation across the financial services spectrum starting with banks and NBFCs. This positions us well to capitalise on growth in general as well as to be prepared for any opportunities in any of the sectors in which we operate," said Srinivasan, adding that scale liquidity on the company's balance sheet will give it that extra edge to grow market share while several peers are calibrating or shrinking their businesses.
"We have cut out most of our exposure in gems and jewellery, auto, real estate - sectors we felt were more vulnerable, but even in these sectors, there are companies with bankable assets," he said. About half the company's lending book comprises retail, small and medium enterprises and high networth individuals, and ABCL plans to accelerate its pace of growth in segments, cherry picking opportunities as per its risk return portfolio.