Nippon Life India Asset Management - Well established franchise; high on optionalities - ICICI Securities

Nippon Asset Management (NAM) is the sixth-largest AMC in India with aggregate / equity market share of 7.2% / 7.1%bps respectively as at 9MFY21. With a strong promoter (Nippon Life Insurance), well established brand, large distribution network and healthy AUM market share, NAM can clock ~10% EBITDA (ex-other income) CAGR over FY20-23E along with health ~22% RoE. Initiate with a BUY rating and target price of Rs385 based on 35x core FY23E EPS of Rs9.5 and add Rs51 / share of cash and investments.

- Distribution, AUM market share and strong brand are the key business strengths. NAM has 7.2% / 7.1% total / equity AUM market share as at 9MFY21. This, along with strong distribution (290 offices, >77,500 distributors and 9.2mn folios) and digital capabilities (55% direct AUM mix), puts NAM in a good position to benefit from the prospective growth of Indian AUM industry. Company enjoys strong brand franchise (Nippon Life Insurance is the promoter with 75% stake), which adds to the business strength. Distinct feature of NAM's AUM incudes 18% B15 AUM (vs 14-17% of peers) and 13% ETF market shares along with higher number of distributor/offices.

- Expect earnings CAGR of 11-22% for over the next 10 years assuming +/- 300bps movement in equity market share. Assuming that: 1) Indian nominal GDP clocks 9% CAGR over the next 10 years, 2) aggregate net inflow p.a. is 1% of aggregate GDP (vs 0.8% over 2010-20), and 3) average annual performance growth is 7.8% (vs 6% over 2010-20) - Indian AUM is likely to grow to Rs45trn by 2025 and Rs100trn by 2030. Within a possible +/-300bps change in equity market share, NAM's revenue/ operating profit / PAT CAGR is likely to be 6-15% / 7-20% / 11-22% over the next 10 years after adjusting for decline in yields from growth in AUM and periodic stepdown in allowable MF TER.

- Active strategy in passive investments and growth in non MF businesses lend growth optionalities. NAM has the ETF AUM of Rs312bn (within Fixed income, Equity and commodity segment) as of Dec'20 with 76% share in market volumes. First mover advantage and strong digital capabilities provide a competitive edge in this segment for NAM. Increase in AIF (Rs 35bn as of Dec'20), managed (Rs65bn as of Dec'20) and advised funds (Rs36bn as of Dec'20) through international mandates add to business momentum. NAM also manages assets of over Rs1200bn (AUM as on Dec'20) on account of government mandates which includes managing investments of postal life insurance, rural postal life insurance (mandate received in Oct'20) and employee state insurance corporation.

- Initiate with a BUY rating and target price of Rs385 based on 35x core FY23E EPS of Rs9.5 and add cash and investments of Rs51/share. Our earnings estimate is based on NAM maintaining its market shares and Indian AUM clocking 11% CAGR during FY20-FY23E. The valuations capture the definitive outlook of healthy double-digit growth with 20% RoE.

Shares of Nippon Life India Asset Management Ltd was last trading in BSE at Rs.329.65 as compared to the previous close of Rs. 330.45. The total number of shares traded during the day was 31488 in over 594 trades.

The stock hit an intraday high of Rs. 335 and intraday low of 326.2. The net turnover during the day was Rs. 10388960.

Source : Equity Bulls

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