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Research
Retain BUY on UTI Asset Management Company - Market share stabilising - HDFC Securities
Posted On : 2021-02-02 18:17:11( TIMEZONE : IST )
Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities
While UTIAM's equity performance and market share have improved, high staff costs continue to pose a significant challenge to core profitability. We do expect employee costs reduction (to 20.2bps of AAUM in FY23E vs. 25.8bps in FY21E) as a result of natural retirements. AUM growth and cost rationalisation are expected to drive near term performance and we expect the company to deliver an FY21-23E revenue/NOPLAT CAGR of 10.3/32.5%. We retain a BUY with a DCF-derived target price of Rs 650 (10% execution discount to DCF), valuing the stock at 27.5x Sep-22E NOPLAT + Sep-21E cash and investments. The stock is currently trading at FY22E/23E EV/NOPLAT of 18.1/14.0 and P/E of 20.0/17.1x.
3QFY21 highlights: Revenue at Rs 2.12bn (+6.9%/+6.3% YoY/QoQ) was in line with estimates. Net outflows in equity schemes were Rs 18bn (market share of 4.3%) as tenure of two close-ended focused funds expired in 3QFY21. The core operating profit at Rs 477mn (-35.3/-29.3% YoY/QoQ) was 37.9% below estimates, mainly as a result of high employee costs (+53.5/27.5% YoY/QoQ), which in turn were due to (1) ESOP expenses (Rs 73mn) (2) increased variable pay in 3Q, and (3) impact of non-managerial settlement payment of Rs 120mn in Mar-20. Higher-than-estimated treasury income of Rs 1.32bn (+198.3/67.3% YoY/QoQ) drove APAT to Rs 1.40bn (+66.7/18.3% YoY/QoQ). We have adjusted our FY21E estimates, mainly to build in higher other income.
For the fixed income segment, UTIAM has hired three new credit analysts to boost performance. For the equity segment, the company is focusing on gaining market share by targeting top 25 IFAs in T-15 cities. In terms of performance, management highlighted that 80% of the UTIAM's equity funds are in top quartile 1 and 2.
Outlook: Over FY21-23E, we expect a gradual recovery in assets and earnings. For FY21E, we expect revenue/NOPLAT to grow by 2.0/-22.9% YoY.
