Aditya Birla Capital rallies 6% on plans to merge Aditya Birla Finance

Analysts believe that the amalgamation scheme would offer key positives to Aditya Birla Capital, which includes simplified operations and elimination of Holdco discount.

Shares of Aditya Birla Capital rallied 6 per cent to Rs 190.65 on the BSE in Tuesday's intra-day trade after the company announced amalgamation of Aditya Birla Finance, its wholly-owned subsidiary, with itself, subject to regulatory approvals.

At 01:06 pm; the stock was trading 2 per cent higher at Rs 183.70, as compared to 0.25 per cent rise in the S&P BSE Sensex. The average trading volumes at the counter jumped over three-fold. A combined nearly 24 million equity shares changed hands on the NSE and BSE. The stock had hit a 52-week high of Rs 199.40 on July 3, 2023.

Aditya Birla Capital is a systemically important non-deposit taking core investment company (NBFC-CIC). Aditya Birla Finance (ABFL), a wholly-owned subsidiary of the Company, is a non-deposit taking systemically important NBFC (NBFC-ICC). The merger will create a large unified operating NBFC.

The proposed amalgamation will lead to consolidation of the businesses and operational synergies and resulting in the expansion and long-term sustainable growth.

Post completion of the amalgamation, Aditya Birla Capital will get converted from a holding company to an operating NBFC. This will create a unified large entity with a greater financial strength and flexibility enabling direct access to capital. This will also help the Company to maximise its share of opportunities by efficient utilisation and allocation of capital.

The management said 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. The move will help to serve customers better, achieve efficient utilization of capital, enhance operational efficiencies and hold the potential to create long-term value for all our stakeholders, the management said.

Analysts at JM Financial Institutional Securities believe that the scheme would offer key positives which include simplified operations, elimination of Holdco discount since ABFL was mandated to be listed by September 2025 as per NBFC-UL guidelines, and 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 scenarios, the brokerage firm said.

Analysts maintain a ‘Buy’ rating on the stock with upward revision in target price to Rs 240 (from earlier Rs 220) resulting from removal of 15 per cent Holding Company discount which the brokerage firm said it had applied to ABFL entity on its previous target price.