Aditya Birla Capital Shares Jump Nearly 6% As Board Approves Finance-Unit Merger

Shares of Aditya Birla Capital Ltd. rose on Tuesday after its board approved the merger of wholly owned unit Aditya Birla Finance Ltd. with the company.

The merger is subject to sanctions of the National Company Law Tribunal and other necessary approvals from the Reserve Bank of India, the Securities and Exchange Board of India and other shareholders.

While the merger is expected to be completed in the next nine to 12 months, there will be no fresh issue of shares and the shareholding patterns will continue to be the same, according to Morgan Stanley.

"We think the development will be viewed as neutral to positive by the broader market and hence, the share price could benefit moderately in the near term," the brokerage said in a report on Monday.

ABFL has been classified as an upper-layer entity because of which the company is required to be listed by Sept. 30, 2025. This will likely result in a holding company discount. But the merger of the NBFC with a non-operating holding company, in addition to having it as a listed operating company, could reduce the discount, the report said.

With the RBI approval still pending, Morgan Stanley retains its 20% holding company discount assumption. It has given the stock an 'equal weight' rating and has a price target of Rs 190 per share, indicating an upside of 6%.

Jefferies has a 'buy' rating on the stock. It raised the price target to Rs 225 per share, with an upside of 25%.

The brokerage expects the scheme to simplify the corporation structure, resolve the mandatory listing issue and lift capital to risk (weighted) assets ratio by 150 basis points.

However, ABCL will have to comply with the 50% cap on holding in insurance entities by an NBFC and trim its stake in Aditya Birla Life Insurance Co. The removal of holding company discount has lifted the sum-of-the-parts valuation by 12%, Jefferies said.

BofA maintains a 'buy' stance with a target price of Rs 214 apiece as it expects the merger to have positive impact. It has a strong industry-leading growth outlook for the company.

The holding company discount would narrow, as amalgamation visibility improves, it said.

The CRAR will rise to 150 bps. The amalgamation should have a positive impact for shareholders due to moderation of holding company discount and rise in capital adequacy, according to BofA.

The merger will help improve financial stability and operational efficiency, it said.

Shares of ABCL rose as much as 5.81% during the day to the highest level since March 6, before paring gains to trade 3.20% higher at 10:08 a.m. This compares to a 0.46% advance in the NSE Nifty 50.

The stock has risen 26.22% in the last 12 months. The total traded volume so far in the day stood at 6.7 times its 30-day average. The relative strength index was at 52.84.

Of the nine analysts tracking the company, eight maintain a 'buy' rating and one recommends a 'hold,' according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 20.5%.