Aditya Birla Capital Ltd Management Discussions

1 ATS has been derived basis closing AUM to active customers, and represents an approximate figure as on 31 st March, 2024

Our branch expansion strategy has always focused on accessing the underpenetrated credit regions. New branches are opened after understanding credit potential, analysing regional insights and serviceable locations as per the bureau scorecard. We increased our branch strength in FY24 by 89 to 412 branches as of 31st March, 2024. In line with our focus on the retail and SME segment, most branches have been added in Tier III and Tier IV markets, providing physical proximity with the customer. The expansion of the branch network has helped significantly in increasing AUM with better control over operations and collections.

ABFL has strong data and analytics teams across operations, including sourcing, underwriting and collections. Below is a summary of use of analytics in our operations:

The net interest income (including fee income) grew 43% year-on-year to RS. 6,296 Crore in FY24, driven by strong loan growth and expansion in net interest margin. The net interest margin (including fees) increased by 6 basis points to 6.90% in FY24, supported by an increase in lending rates, partly offset by a rise in borrowing costs. Operating expenses increased by 38% year-on-year to RS. 1,957 Crore, on account of business expansion, technology and digital solutions. The cost-to-income ratio improved by 104 bps to 31.08% in FY24. The pre-provisioning operating profit increased by 45% year-on-year to RS. 4,339 Crore in FY24. The credit provisions as a percentage of average advances was 1.50% in FY24. The profit before tax increased by 43% year-on-year to RS. 2,987 Crore in FY24. The profit after tax increased by 43% year-on-year to RS. 2,221 Crore in FY24. The return on assets was 2.46% in FY24 and return on equity increased by 233 basis points year-on-year to 17.1% in FY24. The total equity increased by 33% year-on-year to RS. 15,244 Crore as of 31st March, 2024. During FY24, there was equity capital infusion of RS. 1,600 Crore in ABFL.

Gross stage 2 loans declined by 74 basis points year-on-year to 2.0% and gross stage 3 loans declined by 61 basis points year-on-year to 2.5%. The provision coverage on gross stage 3 loans increased from 46.2% as on 31st March, 2023 to 49.9% as on 31st March, 2024.

ABFLs Asset Liability Management (ALM) is optimised for both liquidity and cost. As on 31 st March, 2024, ABFLs had a cumulative surplus liquidity for the tenor up to 1 year. ABFL raised RS. 27,898 Crore in long-term borrowing during FY24.

Out of the total liabilities, 38% have fixed rates and 62% have floating rates. Of the total assets, 34% have fixed rates and 66% have floating rates. In terms of liquidity, there is significant availability to meet obligations, even under severe stress conditions.

ABFL has focused on optimising interest costs and improving the borrowing mix without over-dependence on a particular source of borrowing while maintaining ALM requirements. ABFL leveraged its relationships with banks and financial institutions and raised Long-Term borrowing of ~ RS. 28,000 Crore in FY24. With a focus to diversify the sources of borrowings, ABFL launched its maiden public issue of NCD for RS. 2,000 Crore in September-24. The NCD issue (of RS. 1,000 Crore + RS. 1,000 Crore) was fully subscribed on day 1 of the offer launch and was closed

Note: Liabilities with contractual maturity less than 1 year are considered as floating.

in three working days. This public issue gave ABFL an entry into retail investors via long-term debt. In the coming years, ABFL intends to tap different sources to diversify its borrowing mix.

As on 31st March, 2024, the capital adequacy ratio was 16.24% (31st March, 2023: 16.38%) against a minimum of 15% as required by the RBI. Tier I capital was 14.13% (31st March, 2023: 13.92%) and Tier II capital was 2.11% (31st March, 2023: 2.46%).

Long-term funding facilities of ABFL are rated AAA and short-term funding facilities are rated A1+ by ICRA, CARE and India Ratings. These ratings depict the confidence on sound financial management and timelyrepaymentoffinancial obligations. The growth of the loan book has been accompanied by strong credit appraisal and risk management practices, which have helped us to deliver stable risk-adjusted returns and improve the quality of our book.

The non-banking financial company (NBFC) sector in India has undergone remarkable growth, establishing itself as a significant player within the countrys financial landscape. One of the key drivers for the expansion of the NBFC sector is the increased demand for credit from the MSME sector. Moreover, the governments commitment to promote financial inclusion through initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan Mantri Mudra Yojana, and Stand-Up India has further elevated the importance of NBFCs. These initiatives position NBFCs as vital facilitators, providing credit access to the unbanked and underbanked population. ABFL remains focused on simplifying finance for its customers while leveraging its digital capabilities to drive profitable growth. Going forward, we will grow our AUM by focusing on the retail and SME segments, growing the share of direct business and increasing upsell and cross-sell by using analytics. We will leverage our digital platforms Udyog Plus and ABCD, the extended ABG and ABC ecosystem and our pan-India based branch network to deliver superior TAT, enhance customer experience through mobile-friendly solutions with faster decision-making by improve customer selection process.

^ Includes Fee Income and net of sourcing cost.

Aditya Birla Housing Finance Limited (ABHFL) is registered with the National Housing Bank as a housing finance company under the National Housing Bank (NHB) Act, 1987. ABHFL offers a comprehensive range of housing finance solutions covering home loans, home extension loans, plot and home construction loans, home improvement loans, loans against property, construction financing, lease rental discounting, commercial property purchase loan and property advisory services. ABHFL holds a long-term credit rating of AAA (stable) by ICRA and AAA (stable) by India Ratings.

The mortgage industry in India is estimated to grow at 15% CAGR to cross RS. 100 trillion by 31st March, 2030, backed by increase in urbanisation, higher affordability, and preference for home ownership post-COVID-19. Within the mortgage industry, the home loan portfolio constitutes 78.9% i.e. RS. 31.1 trillion as on 30th August, 2023, as per a CIBIL TransUnion report.

The housing demand will likely to continue and is expected to be strong due to a combination of demographic and structural factors. These factors include a large population base, a growing middle class (which is becoming the largest consumer category), rising urbanisation, higher rates of home ownership, improving affordability, and a shortage of high-quality housing options for lower-income segments of the population.

The revival of housing demand since the pandemic has been anchored on increased preference for home ownership as well as significant upscaling among homebuyers with a preference for bigger houses and better-rated developers. This trend is reflected in the increasing contribution of higher ticket sizes of loans.

ABHFLs priority is to build a digital and analytics-backed retail housing franchise catering to the housing needs of salaried, self-employed and professionals running micro-businesses across Tier I suburbs, Tier II and Tier III cities with optimum credit quality. We currently service 64,900+ customers and our disbursements increased by 59% year-on-year to RS. 8,450 Crore in FY24. We continue to focus on high quality at origination.

About 95% of retail disbursements were to customers with a CIBIL score of more than 700 and new-to-credit customers. ABHFLs portfolio grew by 33% year-on-year to RS. 18,420 Crore as of 31st March, 2024 of whichRS. 11,717 Crore were towards housing loans, RS. 4,754 Crore towards loan against property, and RS. 1,949 Crore towards Developer Finance.

ABHFL has a presence in 19 states and union territories and 117 cities. A network of 135 branches servicing 8,143 pin codes covering ~85% of total origination opportunity. The analytics driven micro-market penetration strategy has helped scale business in top 10 cities by 65% in FY24. With the focus on scaling up retail business, it was imperative to create a sustainable distribution. We doubled our channel base in FY24 compared to FY23. We have extended our avenues of distribution for ABG Ecosystem to ABG Companies, Employees, and Distributors. The contribution of ABG and ABC ecosystem in retail disbursements increased from 7.2% in FY23 to 9.8% in FY24.

ABHFL embarked on a transformational journey with digital and analytics being the core drivers. Digital platforms and analytical models were developed based on customer life cycle (prospecting fulfillment servicing collections). Finverse was introduced that has digitised the entire lending process from prospecting to disbursement, providing customers with a seamless experience, faster turnaround of loan applications, greater transparency of loan status, and real-time updates.

We are leveraging data and analytics by committing to fortify processes and analytical capabilities to harness data effectively. Our focus is to strengthen our data-driven capabilities to diagnose, predict and decide the next best course of action for employees, management, and customers alike. Data marts were the bedrock of all the analytical models deployed and under development. 9 data marts and various analytical models across customer life cycle were deployed in FY24.

ABHFL continues to deliver strong core operating profit over the years. The net interest income¹ (including fee income, other income net of DSA expenses and processing cost) saw a 24% increase year-on-year to RS. 815 Crore in FY24, backed by growth in all segments. The net interest margin (including fee income, other income net of DSA expenses and processing cost) increased by 9 basis points to 5.39% in FY24. We accelerated investments in digital, technology, analytics, manpower resulting in an operating expense to average loan book of 2.93% in FY24. Efficient collection management, improved resolution and bounce rate led to lowest credit cost, a decrease of 61 basis points year-on-year to -0.03% in FY24. Combined impact of above variables led to increase in profit after tax by 21% year-on-year to 291 Crore in FY24. The return on assets was 1.92% and return on equity increased by 71 basis points year-on-year to 13.87% in FY24.

Gross stage 2 and 3 loans reduced by 208 bps year-on-year from 4.99% in March 2023 to 2.91% in March 2024. The provision coverage on gross stage 3 loans increased from 31.9% as on 31st March, 2023 to 33.0% as on 31st March, 2024. We launched an end-to-end debt management platform called ‘FinCollect. It utilises analytics for effective debt management, including a pre-delinquency model for bounce prediction and a flow prediction model for the 30-89 days past due (DPD) pool.

ABHFL is well-positioned to meet its liquidity needs by maintaining a positive ALM. The below chart depicts the inflows and outflows for each of the buckets.

We have also maintained adequate liquidity in the form of unutilised bank credit line worth RS. 2,581 Crore (average unutilised long-term loans of RS. 2,036 Crore and working capital loans of RS. 545 Crore).

ABHFL primarily sources funds from Banks in the form of term loans and cash credit/WCDL, NHB refinance borrowings, non convertible debentures (NCDs) and commercial papers. The

NHB refinance borrowing mix increased to 20% in March 2024. During the year, we borrowed RS.3,492 Crore (which includes NHB refinance of RS. 1,547 Crore). We also raised RS. 2,205 Crore through private placement of secured NCDs.

The capital adequacy ratio as on 31st March, 2024 was 16.79%. The net worth of ABHFL grew by 15% year-on-year to RS. 2,260 Crore as of 31st March, 2024.

Long-term funding facilities of ABHFL are rated AAA (stable) and short-term funding facilities are rated A1+ (stable) by ICRA and India Ratings. These ratings depict the confidence that we have earned by our sound financial management and timely repayment of financial obligations.

ABHFL remains committed to implementing its strategy across diverse product lines and segments to stimulate and capitalise on the next growth phase. Going forward, we will leverage the extended ABG and ABC ecosystems to accelerate growth in prime and affordable segments. We have made significant investments in hiring people and in improving our digital capabilities to enhance customer transacting experience and reduce turnaround time. We will build on these capabilities to further accelerate the growth in the portfolio going forward.

• Accelerate growth in prime & affordable segments with average ticket size of RS.25-30 lakh

• Growth to be augmented by ABG ecosystem

• To be the most preferred choice of our customer

• Digital capabilities for seamless customer onboarding and servicing

• Building a culture of spotting opportunities with customers at centre

• Develop assisted/DIY customer journeys with Effective lead management

• Seamless distributor onboarding

• Significant reduction in TAT, increased face time with customers

• 135 branches as of Mar 31, 2024, covering ~85% of TAM

• Sourcing driven by micro market penetration strategy

• Deeper engagement with ABG ecosystem

Since 1994, Aditya Birla Sun Life AMC Limited (ABSLAMC) has been one of Indias leading asset management company. We offer customers a wide variety of investment solutions focused on regular income, wealth creation and tax savings, among others. ABSLAMC is the fifth-largest Asset Management Company (AMC) in India based on quarterly average AUM (excluding ETFs) as of 31st March, 2024.

In FY24, the mutual fund industry witnessed significant growth in assets under management (AUM) due to the positive impact of mark-to-market and substantial inflows into various equity schemes. Net equity sales of RS. 3.3 Lakh Crore were recorded in FY24 through new fund offerings and existing funds. Within the existing equity and hybrid categories, sectoral/thematic, arbitrage funds, small cap funds and multi asset allocation funds schemes saw the highest net inflows.

• The Industrys Average Assets under Management (AAUM) for the quarter ended on 31st March, 2024 reached RS. 54.11 Lakh Crore, recording a growth of 34% over the same period last year.

• The Industrys Equity AAUM stood at RS. 30.93 Lakh Crore for the quarter ended 31st March, 2024, up by 49% from the same period last year.

• The inflows to mutual funds via systematic investment plans (SIPs) have been on an upswing during the fiscal year 2024, rising from RS. 14,276 Crore in March 2023 to RS. 19,271 Crore in March 2024, reflecting a year-on-year increase of 35%.

• As of 31st March, 2024, the total number of mutual fund investors stood at around 18 Crore compared to around 14.76 Crore on 31st March, 2023, reflecting a year-on-year increase of 22%.

• The Individual investor Monthly Average AUM (MAAUM) surged to RS. 33.31 Lakh Crore, growing by 43% year-on-year and contributing 61% of the total Monthly Average AUM.

• The mutual fund monthly average AUM for March 2024 from B30 cities was at RS. 9.83 Lakh Crore, which accounted for 18% of the total AUM.

ABSLAMC achieved its highest-ever profit in FY24, with a after tax of RS. 780 Crore growing 31% year-on-year. The overall Quarterly Average Assets under Management (QAAUM) as on 31st March, 2024 stood at RS. 3,45,837 Crore, a growth of 21% year-on-year. Mutual fund QAAUM as on 31st March, 2024 stood at RS. 3,31,709 Crore growing by 21% year on year, with market share (excluding ETF) of 6.9%. Mutual fund Equity QAAUM as on 31st March, 2024 was RS. 1,52,014 Crore growing by 31% year on year, with a market share of 4.9%. The equity mix improved to 46% of the mutual fund QAAUM as compared to 42% in the previous year.

Systematic Investment Plans (SIPs) have become a preferred investment choice for retail investors. As a key player in the industry, ABSLAMC has undertaken initiatives to enhance traction in SIPs. Its constant endeavour is to build the SIP book size and ensure customer stickiness while creating long-term value for investors. As a result ABSL AMCs SIP and STP book reached RS. 1,252 Crore in March 2024, marking a 25% increase from RS. 1,003 Crore in March 2023.

Customer acquisition continues to be a key focus area for ABSLAMC. It added approximately 1.1 Million new folios in FY24, bringing the total folios to 8.60 Million, as of 31st March, 2024.

Over the last few years, ABSLAMC has dedicated its efforts to expanding the retail franchise and growing the geographical presence across B30 cities. It has expanded pan-India presence to over 290 locations, with more than 80% located in B30 cities. Individual MAAUM in March 2024 wasRS. 1,73,238 Crore, compared to RS. 1,40,303 Crore in March 2023 growing by 23% year-on-year. The Institutional MAAUM size was RS. 1,57,178 Crore in March 2024, up from RS. 1,27,220 Crore in March 2023, showing a growth of 24% year-on-year. The B30 MAAUM reached RS. 57,816 Crore in March 2024 compared to RS. 44,846 Crore in March 2023 growing by 29% year-on-year

As part of the overall strategy, ABSLAMC focused on building the retail sales segment across T30 and B30 markets. It has been strengthening the multi-channel sales ecosystem and distribution network by integrating key levers of Direct Chanel, Emerging Markets, Virtual Relationship Manager, Service to Sales and Sampark. The multi-channel market initiatives, aimed at deepening our presence, have yielded positive results.

• Direct Channel aims to provide personalised attention and tailored solutions to meet the unique needs and preferences of high-net-worth clients, targeting increase presence beyond Top 8 locations across India.

• Emerging Markets aim to tap into potential rural and emerging markets at an early stage to build growth. It also aims at deepening product awareness through continuous engagement drives for investors and distributors.

• Virtual Relationship Manager (VRM) enhances the new distributor experience through virtual assistance and guidance, focusing primarily on increasing activations, SIPs, and gross sales. It aims to upgrade Mutual Fund Distributors (MFDs) to high-potential business partners and integrate them into Retail Sales.

• Under Service to Sales model, Service RMs effectively engage with investors and facilitate their investment decision. They identify opportunities for win back, retention and upselling.

• ‘Sampark, ABSLAMCs distribution expansion initiative, empanels and onboards new distributors. It follows a One-click, end-to-end digitally enabled distributor empanelment journey to make the process seamless

In FY24, ABSLAMC expanded its pan-India network of empanelled distributors to include 81,000+ KYD-compliant MFDs, 305+ national distributors, and 80+ banks. It continues to expand the distributor base and has empanelled 9,100+ new MFDs during the year.

The passive product offering yielded positive results, with assets growing over 17 times from RS. 1,692 Crore in March 2021 to RS. 28,902 Crore in March 2024. ABSLAMC expanded its existing product suite to include 43 products. The customer base in this category has also grown to approx. 6,85,000 folios, increasing 7 times since March 2021. Additionally, it holds the top rank in the Index Debt category based on Average AUM for the quarter ending 31st March, 2024.

On the alternative business front, to meet the growing needs of HNIs and family enhance PMS and AIF offerings in both equity and fixed income Currently, we offer over 13 products in PMS and AIF. We believe both equity and fixed Income AIF product offerings will further strengthen the Alternate Business vertical. On the real estate front, the Aditya Birla Real Estate Credit Opportunities Fund (Cat II AIF) has been fully deployed across five investments and has successfully executed its first exit

The GIFT City operation has gained momentum with the launch of a few products to invest in the overseas market under the ABSLAMChas strengthened the team to LRS scheme. ABSLAMC has launched ABSL Global Emerging Equity Fund, which strategically feeds into the ARGA Emerging Market Equity Fund, enabling investors to access and benefit from emerging market opportunities.

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ABSLAMC has been a leading investment manager that has committedly worked towards achieving financial inclusion, deepening financial markets and developing the mutual funds industry. Our strategy remains rooted in our Customer-first ethos and our commitment to serve investors over the long term by providing holistic investment solutions and consistent investment performance. With a steadfast commitment to investor interests, our primary focus is on customer experience through a strong risk management and governance framework, research-backed fund management and technology-backed service delivery. This commitment has helped us to build our AUM size over the years, as well as develop a robust customer base. While these fundamental principles have enabled ABSLAMC to establish itself in the mutual fund space, they will also guide it towards accelerated growth in the alternative asset space.

Aditya Birla Sun Life Insurance Company Limited (ABSLI) is a 51:49 joint venture between the Aditya Birla Group and Sun Life Financial Inc., Canada. ABSLI has contributed immensely to the growth and development of the Indian life insurance industry and is currently one of Indias leading private life insurance companies. ABSLI offers a range of products across the customers lifecycle, including children future plans, wealth protection plans, retirement and pension solutions, health plans, traditional term plans and unit-linked insurance plans (ULIPs).

In the post-COVID-19 world, life insurance has gained prominence. Insurance not only acts as a cushion against an unfortunate circumstance, but it is also considered a traditional tax-saving instrument. The pandemic has led to an upswing in people opting for insurance, with a lot of movement observed in the health and general insurance space, and the life insurance space also evolving. Protecting employees, securing gratuity, and offering other employee-related termination benefits have been a key-drivers for demand of group life insurance and have also led to the increase in market share of private players in this space. During FY24, the individual first year premium for the life insurance industry grew by 5% year-on-year to RS. 1.09 Lakh Crore. Within this, the private players grew by 8% year-on-year. During FY24, the group first year premium for the life insurance industry grew by 1% year-on-year to RS. 2.28 Lakh Crore. Within this, the private players grew by 20% year-on-year.

Individual first year premium grew by 2% year-on-year to RS. 3,074 Crore in FY24. The group new business premium grew by 9% year-on-year to RS. 4,554 Crore in FY24. The growth in group new business Gross premium was on account of the fund-based group business and credit life products. Total premium (including renewal premium) grew by 15% year-on-year to RS. 17,260 Crore in FY24.

ABSLI continues to have a diversified product portfolio. A diversified product strategy helps in safeguarding against capital market volatility, regulatory changes and changes in customer behaviour. We have positioned our products based on the unique features and benefits they offer to customers. During the year, ABSLI has endeavoured to maintain a balanced mix while controlling the contribution of ULIPs. However, in line with the private industry, there has been a shift in the ULIP mix in FY24 on account of the impact of taxation of high-ticket non-linked products and buoyant capital markets. In FY24, ABSLI launched 4 products with 2 one-of-a-kind products in the protection and the unit-linked space. The new products are likely to generate good traction. The focus on increasing protection mix is consistent with the protection mix in proprietary channels at 5%. All term policies are 100% medically underwritten to ensure the quality of business undertaken. Moreover, to protect policyholders guaranteed benefits in low-interest rate scenarios, ABSLI has entered into forward rate agreements (FRA) to protect 100% expected maturity and survival benefits.

ABSLI continues to have an expansive and distributed sales network across the country, including own and partner branches. This approach allows us to reach any part of the country, and we are committed to widening our footprint by investing in proprietary channels and adding more partners. We continue to invest in higher capacity in our proprietary channels and other partners. ABSLI tied up with Axis Bank, IDFC FIRST Bank and Bank of Maharashtra during FY24. Sourcing from Bank of Maharashtra and IDFC FIRST Bank started in FY24, and we are in the process of scaling up business volume with these channels.

Renewal premium grew by 24% year-on-year to RS. 9,160 Crore in FY24. The growth was on account of higher new business growth in the previous year, improved persistency, and continuous demonstration of the customers trust. 13th month persistency grew to 88% in FY24 (FY23: 87%), 25th month to 75% (FY23: 71%) and 61st month persistency to 65% (FY23: 54%). Renewal premium collection by Bot (ZARA) grew by 10% year-on-year RS. 731 Crore in FY24.

Higher digital adoption by customers and distributors requires insurers to develop robust technological capabilities and highly efficient platforms powered by analytics, automation, and artificial intelligence. This will address customers expectations of personalised and improved service experiences. The seamless integration of these platforms and processes with the partners systems is necessary.

ABSLI has digitised its front-end and back-end processes, covering all the major milestones of the policy lifecycle. We are consistently investing in assets which would enable us to issue policies instantly. It features customer acquisition assets like pre-sales app for lead generation management, prospective app sales buddy for assisting advisors, platform for managing new business digitally, among others. We have also automated AI-driven underwriting system, which enables us to auto underwrite policies and acts as an aid to intelligence for acquiring new risk consciously. Pre-approved sum assured (PASA) contributes 29% of individual first year premium in FY24. We also have a new claims processing system targeted towards auto claim clearance thereby reducing TATs and increasing customer satisfaction.