REDUCE on Nippon Life India Asset Management - Market share stabilising - HDFC Securities

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities

NAM gained equity market share in 2QFY21 by 26bps QoQ to 7.1%. We expect the company to focus on improving performance and to continue to recoup its lost market share. Additionally, we expect NAM to benefit from increased credibility to raise HNI/institutional capital. We estimate NAM would deliver an FY21-23E revenue/PAT CAGR of 11.9/9.7%. Rich valuations at FY21E/22E P/E of 32.6/29.7x compel us to retain our REDUCE rating with a target price of Rs 295, valuing the stock at 36x Sep-22E NOPLAT + cash and investments.

2QFY21 highlights: Revenue at Rs 2.59bn (-13.8%/+11.0% YoY/QoQ) was in line with estimates. Equity/debt QAAUM market share was stable, moving 26/-12bps QoQ to 7.1/7.3%. All asset classes except liquid saw healthy QoQ growth in QAAUM. Core operating profit at Rs 1.27bn, -6.4/31.7% YoY/QoQ was 5.7% above estimates, mainly as a result of lower employee costs. Recovery in equity markets resulted in treasury income of Rs 637mn (+184.8/-38.2% YoY/QoQ). APAT at Rs 1.45bn (+18.5/-7.0% YoY/QoQ) was +17.6% vs. est., mainly due to other income.

NAM's equity performance has lagged; as a result of which, management has added additional fund managers, re-aligned funds, increased focus and improved risk management. Management expects an improvement over the next 2-3 quarters. The company has received commitments of ~Rs 34bn in foreign mandates and expects complete drawdown in 2-4 years.

Outlook: We have fine-tuned our estimates to build in higher other income. We expect a gradual recovery in assets and earnings. For FY21E, we expect revenue/EBIT to decline by 15.0/21.3% YoY respectively.

Shares of Nippon Life India Asset Management Ltd was last trading in BSE at Rs.273.35 as compared to the previous close of Rs. 273.4. The total number of shares traded during the day was 40187 in over 2423 trades.

The stock hit an intraday high of Rs. 277.15 and intraday low of 270. The net turnover during the day was Rs. 10966889.

Source : Equity Bulls

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