Shares of Aditya Birla Capital rose nearly 6% intra-day following the announcement that the company will merge subsidiary Aditya Birla Finance with itself. The stock closed up 2.23% at Rs 183.65 on the BSE. On the National Stock Exchange, shares closed with gains of 1.97%.
Aditya Birla Capital is the holding company for the Aditya Birla group’s financial services business and owns various operating entities.
The merger, which is expected to take 12 months, will make Aditya Birla Finance the first entity among the upper layer NBFCs to set a clear path for complying with Reserve Bank of India (RBI)’s scale-based regulations. The regulations require the mandatory listing of Aditya Birla Finance by September 2025.
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With the amalgamation, the company aims to rationalise the group structure by reducing the number of legal entities, achieve optimal and efficient utilisation of capital, enhance operational and management efficiencies and consolidate the business, it said in a filing.
“We believe that the scheme would offer key positives like simplified operations, elimination of Holdco discount since ABFL was mandated to be listed by September 2025 as per NBFC-UL guidelines, and the absence of separate listing costs of ABFL,” JM Financial said in a report.
The merger will help increase capital-to-risk weighted asset ratio by 150 basis points. Analysts say this postpones the potential need for the company to raise growth capital.
Upon the scheme becoming effective, equity investment in Aditya Birla Finance by Aditya Birla Capital shall stand cancelled. There will be no change in shareholding, management or control of Aditya Birla Capital.
The merger of Aditya Birla Finance with a non-operating holding company, in addition to having it as a listed operating entity, could reduce the holding company discount on Aditya Birla Capital’s stock, Morgan Stanley said.
“The amalgamation should have a positive impact for shareholders due to moderation of holding company discount and rise in capital adequacy. The merger will help improve financial stability and operational efficiency,” BofA said in a report.
Aditya Birla Capital must comply with the 50% cap on holding in insurance entities by a non-banking financial companies and trim its stake in Aditya Birla Sun Life Insurance. Currently, the company holds a 51% stake in the life insurer.
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“The removal of holding company discount has lifted the sum-of-the-parts valuation by 12%,” says Jefferies.
Some analysts are awaiting the RBI’s approval for the merger to revise their estimates for Aditya Birla Capital.
