Analyst Corner: Retain ‘reduce’ on HDFC AMC with unchanged FV of Rs 1,950

By: |
October 24, 2020 8:45 AM

On a qoq basis, QAAUM was up 5% (on the back of 12% growth in equity AUMs) leading to 3 bps rise in yield and 4 bps expansion in core PBT.

We value HDFC AMC stock using our base case target P/E multiple.

Profitability inches up qoq. HDFC AMC’s 2QFY21 performance was on expected lines. Even as QAAUM was flat yoy, 4 bps yoy decline in revenue yield due to unfavorable AUM mix was partially offset by expense controls, translating into 2 bps yoy decline in core PBT to 38 bps. On a qoq basis, QAAUM was up 5% (on the back of 12% growth in equity AUMs) leading to 3 bps rise in yield and 4 bps expansion in core PBT. We retain estimates; reiterate REDUCE with unchanged FV of `1,950.

HDFC AMC reported 7% yoy decline/16% qoq growth in core PBT (PBT before other income) to `3.5 bn. While quarterly average AUM (QAAUM) was flat yoy and up 5% qoq at Rs3.7 tn (closing AUMs down 3% yoy), revenue yield declined 4 bps yoy, up 2 bps qoq to 49 bps reflecting change in the composition of business. The company managed to cut expenses (down 12% yoy and down 3% qoq), largely due to transitory payouts (with respect to new business generated in the previous periods) in the base year. Overall core PBT was down 2 bps yoy, up 4 bps qoq to 38 bps for the quarter.

HDFC AMC reported QAAUM of Rs3.75 tn, flat yoy and up 5% qoq. Equity AUMs were up 12% qoq (though down 10% yoy), likely reflecting market movements. Consequently, the share of equity AUMs declined to 39% from 43% of total in 2QFY20, up from 37% in 1QFY21. Its overall market share in equity assets has moderated to 14.2% from 16.2% in 2QFY20 and 14.6% in 1QFY21. Overall market share was down 100 bps yoy and qoq to 13.6%
We retain our estimates, DCF-based FV of Rs 1,950 and REDUCE rating on HDFC AMC. Reiterating key arguments for our REDUCE rating sharp deceleration in nominal GDP growth to 8% over the medium term from 11% during FY2015-20. Passive funds will likely gain traction over the medium term, gaining share from the active fund management industry as the latter struggles to outperform indices. Distributor commissions (including 90% of MF expenses/fees) were slashed in FY2020 (down 29% yoy, near FY2017 levels), which, we believe will not sustain.

While HDFC AMC delivers superior growth and profitability, its rich valuations (34.8X FY2022E EPS) ignore the aforesaid industry-wide risks.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Investment advisers cannot charge implementation fee for advisory clients: Sebi
2Monday mayhem on Dalal Street as Sensex, Nifty tank; here’s what experts make of today’s trade
3Securitisation volumes rise to Rs 40K cr in Q4 FY21