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Retain BUY on Nippon Life India Asset Management - Strong core despite market share loss! - HDFC Securities

Posted On: 2020-05-18 15:33:23

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities.

Nippon Life India Asset Management (Q4FY20 Results Review): Strong core despite market share loss!

NAM printed 4QFY20 operating profits of Rs 1.52bn (+9.4/11.9% YoY/QoQ, 18.1% beat). Beat was primarily driven by lower expenses (-44.1/-27.7% YoY/QoQ). Large MTM loss (due to sharp correction on investments in equity AUM) on investment book resulted in negative other income of Rs 1.25bn and caused APAT to decline to just Rs 37mn (-97.3/-97.5% YoY/QoQ). We retain BUY with a TP of Rs 288 (36x Mar-22E NOLPAT + cash)

Revenue at Rs 2.75bn declined 20.0%/9.4% YoY/QoQ as yields declined to 53.6bps (-5.8 bps QoQ). Management clarified that it had tactically increased commissions in 4Q on certain equity schemes.

Total QAAUM was at Rs 2.05tn (-12.3/+0.3% YoY/QoQ, market share 7.6% (-231/-5bps YoY/QoQ)) was lower because of 1) steep decline in equity prices in Mar-20 as equity AUM declined (-4.3% QoQ, equity QAAUM market share at 8.2% (-133bps YoY)), 2) debt funds AUM declined 25.6% QoQ due to outflows and write downs. Management stated that it had activated ~290 corporates/institutions and it expected ramp up soon. Market share remains a key monitorable.

SIP book declined to Rs 8.1bn after being in the range of Rs 8.0-8.5bn since 1QFY19. Avg ticket size continues to decline Rs 2,525 (-8.9% YoY).

Expenses: Staff costs declined 31.1/35.0% YoY/QoQ as the company reduced variable compensation and lower equity markets meant reversal of provisioning for phantom share expenses. Other expenses were also down 35.3/35.9% YoY/QoQ as management curtailed discretionary spends. With a continued difficult macro environment, we expect further cost control.

Others income: NAM posted a loss of Rs 1.25bn was comprising MTM loss of Rs 1.5bn (Equity: ~Rs 1.25bn, Debt: Rs 0.25bn). Total treasury of Rs 22.8bn comprises equity MFs: 12.3%, debt MFs 61.4%, bank FDs and tax free bonds: 26.3%. Management stated that part of the losses have been recouped in the equity market rally during Apr-20.

While we are concerned about the loss of investor confidence which debt schemes face given significant write-downs/offs on exposures to stressed corporates, we believe that post ownership change NAM stands to benefit from increased credibility to raise HNI/institutional capital. We expect company to, over time, regain part of the lost market share. Valuation discount of 29.3% on FY21E EV/NOPLAT to HDFCAMC's multiple is high and we expect the same to contract. We retain BUY with 17.5% lower TP of Rs 288 (36x Mar-22E NOLPAT + cash). We have lowered target multiple given difficult operating environment in FY21E.

Shares of Reliance Nippon Life Asset Management Ltd was last trading in BSE at Rs.243.4 as compared to the previous close of Rs. 244. The total number of shares traded during the day was 39269 in over 1979 trades.

The stock hit an intraday high of Rs. 246 and intraday low of 241. The net turnover during the day was Rs. 9549355.

Source: Equity Bulls

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