CLSA: Maintain ‘buy’ rating on Reliance Nippon AMC

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Published: October 1, 2019 1:04:21 AM

The positioning in the individual/retail segment has fared relatively better (13% share unchanged versus last year) and here the management will need to manage the transition of branding much better — the continuity of key management should help. We see a 15% earnings CAGR over FY19-22.

Improvement here would support better core growth and improvement in its valuation. We maintain our ‘buy’ rating.

Reliance Nippon AMC promoters have consummated a share purchase agreement whereby Nippon Life has raised its shareholding to 75% and has become its sole sponsor. The company plans to change its name with prominence being given to Nippon India. It also addresses concern over AMC’s exposure of Rs 420 crore in bonds to ADA-group that have been repaid and some scheme exposure (Rs 1,300 crore at face value and Rs 300-400 crore market value) has also been repaid. The management team is expected to stay largely intact. A key benefit would be if the transition can help the AMC to reclaim market share — it has lost share across most segments, especially among corporate and HNI clients. Nippon could also help the company secure international mandates for fund management. Improvement here would support better core growth and improvement in its valuation. We maintain our ‘buy’ rating.

Nippon Life being sole sponsor should entail with re-branding of the company from Reliance Nippon AMC towards Nippon India—clarity will come soon. The change should address two key concerns among investors: Exposure of AMC to ADA-group companies and the loss of market share among corporate/HNI clients. The company clarified it has received the repayment of Rs 420 crore of exposure to ADAgroup companies via inter-corporate deposits. These will be reinvested and should abate concern as these were equivalent to 17% of its net worth.

We understand some of the exposure of the scheme has also been repaid. Additionally, RNAM’s schemes also have exposure in some of the groups’ PTCs that it continues to service. It will be important to watch how it is able to reclaim some of the share lost over the past year or so, partly due to investor concern over its sponsors besides the general risk-aversion of investors. RNAM’s market share of total AUM has declined from 10% last year (July 2018) to 8% now with a deeper loss in the debt segment and among corporate/HNI clients. The positioning in the individual/retail segment has fared relatively better (13% share unchanged versus last year) and here the management will need to manage the transition of branding much better — the continuity of key management should help. We see a 15% earnings CAGR over FY19-22.

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