HDFC AMC: TP raised to Rs 2,200 after strong Q1

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Published: July 19, 2019 1:48:47 AM

AUM growth was robust at 18.5% y-o-y to Rs 3.6 trillion with share of equity portfolio at 48% (flat on sequential basis) and primarily driven by an 81.9% y-o-y growth in liquid funds. HDFC AMC has exposure of Rs 12 billion (AMC schemes) to Essel group and resolution is under quasi-judicial authority; however, we believe 1.2x cover on the exposure is sufficient to sail HDFC AMC through.

HDFC, HDFC AMC, HDFC AMC profit,HDFC amc q1, June quarter, Asset Management Company, market news, share market, HDFC Mutual Fund, fmpWith the Indian mutual fund industry on multi-year structural growth path, we find HDFC AMC best placed to tap the huge opportunity with its strong brand, favourable asset mix, and expanding distribution network.

HDFC AMC reported a strong Q1FY20 with PAT up 42.2% year-on-year at Rs 2.9 billion, primarily on amortisation of upfront fees and commission expenses (down 86.5% y-o-y to Rs 113.6 million). Though the amortisation of upfront commission has significantly improved the operating margin, we believe higher trail commission in ensuing years will offset some part of this margin expansion. AUM growth was robust at 18.5% y-o-y to Rs 3.6 trillion with share of equity portfolio at 48% (flat on sequential basis) and primarily driven by an 81.9% y-o-y growth in liquid funds. HDFC AMC has exposure of Rs 12 billion (AMC schemes) to Essel group and resolution is under quasi-judicial authority; however, we believe 1.2x cover on the exposure is sufficient to sail HDFC AMC through.

(a) Total AUM grew 18.5% y-o-y to Rs 3.6 trillion driven by 81.9% y-o-y growth in liquid AUM (23.8% AUM share);
(b) Growth in actively managed equity AUM was relatively lower at 15.3% y-o-y to 11.7 trillion;
(c) While total AUM market share grew 20 bps quarter-on-quarter to 14.7%, market share for actively managed equity AUM was flat at 16.2%;
(d) Market share for stickier individual AUM (up 15.9% y-o-y to Rs 2.2 trillion) grew 30 bps q-o-q to 15.7%. Individual AUM constitutes 59.2% of AUM (vs industry average of 54.3%);
(e) Strong momentum in SIP book continues (Rs 12.7 billion in Jun-19 vs Rs 11.8 billion in Mar-19) with rising mix for long tenure SIP book (above 5 years/10 years mix higher by 60 bps q-o-q); and
(f) IL&FS exposure is fully impaired and provided for.

With the Indian mutual fund industry on multi-year structural growth path, we find HDFC AMC best placed to tap the huge opportunity with its strong brand, favourable asset mix, and expanding distribution network. We have increased FY20/FY21 earnings by 18%/14% factoring in amortisation of upfront fees, leading to increase in target price to Rs 2,200 (Rs 1,910 earlier), but kept multiple unchanged. At CMP, HDFC AMC trades at 35x/31x FY20E/ FY21E EPS. Retail flows were muted in a run-up to the general elections. June saw Rs 57-billion equity inflows (higher than April and May combined) and the management expects the trend to improve further in July.

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