FY22/23e EPS for UTI AMC up 14/20%; NAM, 14/12%; HDFC AMC, 4.7/2%; HDFC downgraded to ‘Hold’
We expect asset management plays will benefit from the improving equity mix for the third successive quarter in Q2FY22e. End to end, equity AUM has grown by 21% between Mar’21 and Aug’21. This was aided by strong equity flows (dominated by NFOs in Jul-Aug’21) of Rs 1.2 trn (ex-Index/passive and including hybrid funds) in 5MFY22-TD and improving SIP book (flows and folios).
This has resulted in a strong possibility of earnings upgrades in FY22. Factoring in the 5MFY22-TD performance, relative cost structures and RoE, we upgrade FY22/23 earnings estimates for Nippon Asset Management (NAM) by 14%/ 12%, UTI Asset Management (UTI AMC) by 14% / 20% and HDFC asset management company (HDFC AMC) by 4.7%/ 2%. We maintain BUY on UTI AMC and ADD on NAM while we downgrade HDFC AMC from Add to HOLD.
Assessing the performance of listed AMCs in 5M-FY22TD: Based on AMFI classification, NAM has been able to grow equity and debt AUM by 18% and 13%, respectively, in 5MFY22-TD. UTI AMC has been able to grow the same by 23% and (-)8% while HDFC AMC has grown it by 12%/1%. We now factor in 16%/32%/29% AAUM growth in FY22E for HDFC/NAM/UTI AMC.
Maintain BUY on UTI AMC with a revised TP of Rs 1,410 (earlier: Rs 1,200) based on 30x FY23E core EPS of Rs 37.4 and cash of Rs 288 per share. Maintain ADD on NAM with a revised target price of Rs 477 (earlier: Rs 430) based on 35x FY23e core EPS of Rs 12 and cash of Rs 58 per share. Downgrade HDFC AMC from Add to HOLD with a revised TP of Rs 3,350 (Rs 3,284) based on 45x FY23e core EPS of Rs 67.8 and Rs 298 cash per share. We factor in 16%/15% AAUM growth for FY22E/FY23E with yields of 48.8bps/ 48bps, respectively (compared to 48.7bps in Q1FY22). Higher than expected growth in AUM can be a positive trigger for earnings going forward. However, higher than expected drop in overall yields can lead to earnings disappointment.
Strong NFOs have characterised FY22-TD: On ex-ETF basis, MFs raised Rs 172 bn and Rs 237 bn in Jul’21 and Aug’21, respectively. In FY22-TD, total amount raised though NFOs has been Rs 479 bn vs Rs 293 bn raised in FY21.
Movement in equity market share: Based on closing monthly AUM data, HDFC AMC equity AAUM market share declined from 12.7% in Jun’21 to 12.1% in Aug’21. NAM equity AAUM market share fell from 6.84% in Jun’21 to 6.76% in Aug’21. The same for UTI AMC improved from 4.76% in Jun’21 to 4.82% in Aug’21.
Movement in debt market share: Based on AMFI data, debt AAUM market share between Jun’21 and Aug’21 changed from 14.4% to 14.5% for HDFC AMC, 7.3% to 7.6% for NAM and 3.8% to 3.7% for UTI AMC.
Flows dominated by Flexi cap in Aug’21: Aug’21 overall inflows into MF schemes were Rs 330 bn vs Rs 146 bn outflows seen in Aug’20.
Improving trends in SIP: Aug’21 SIP flows stood at Rs 99 bn vs Rs 91.6 bn in Jun’21 and Rs 96.1 bn in Jul’21. Industry added 2.5mn new SIP accounts in Aug’21 vs the 1.7mn monthly average in Q1FY22. SIP AUM stood at Rs 5.3 trn, up 5% m-o-m.