Nippon India AMC - Q4FY21 Result Update - YES Securities

Result Highlights

- Revenue - Management Fees was at Rs.3bn was higher than our estimates of Rs.2.9bn. Management fees increased by 10% yoy and witnessed a growth of 12% on sequential basis.

- Yield on Management fees - The Yield on Management fees was at 0.53%, which was a fall of 1bp YoY, against our estimate of 0.51%.

- Operating Profit -Operating profit came at Rs.1.66bn which was in line with our estimates of Rs.1.6bn due to higher than expected operating cost.

- Profits - PAT stood at Rs.1.7bn v/s our estimates of Rs.1.98bn led by sharply lower other income on qoq basis.

- Valuations - The stock currently trades at FY23E P/E of 24x.

- Dividend: The Board has recommended a final dividend of Rs5 per share

Our view: Nippon India AMC delivered better than expected performance on most operating parameters. Given our house view of a significant rally in Indian equity markets in the near term, we expect AUM growth of the industry to remain strong. This shift of product mix towards higher share of equity AUM shall lead to better profitability as yields on Equity AUM is 2x of the overall yields. NAM has demonstrated improvement in cost efficiencies, which will further boost profitability as operating leverage kicks in. Market share recovery is also expected with recent improvement in fund performance. We have raised our estimates by 8% and 6% respectively for FY22E and FY23E respectively driven by better than forecasted AUM performance in Feb and March. Retain our BUY rating with a revised price target of Rs452 (earlier Rs426).

CON-CALL HIGHLIGHTS

Market share and AUM

- 9 lakh new unique investors added, whereas industry added 20 lakh customers 30% market share, 350 institutional investors added in FY21

- Launch 9 NFOs, product launches to continue

- Non MF AUM: Rs1.3 trillion AUM in non MF, Rs103bn offshore, Cathay Taiwan signed

- Digital assets 53% of new business, Direct channel 54%

- Leveraging Nippon Life - 2 real estate funds launched in Japan, Cathay tie up also, expect many such steps going ahead

- HNI market share recovery has started, next 3-4 quarters will see positive lag effect of fund performance

- SIP market share loss: SIP size lower than industry which drives stickiness, SIPs directly correlated with performance and it has started improving in the past couple of quarters, with sustenance of performance expect recovery, very deep into retailing getting into B30, very strong into digital footprint will add volumes

- Not affiliated with bank - has most diversified distribution mix, doesn't see any risk because of this, banca has an advantage in insurance but not in MFs

- Trend in market share decline has plateaued, ultra short term and short term categories are seeing increasing market share

ETF

- Liquidity impact - 3-5% impact cost for customers, liquidity is a pre-requisite to attract investors, ETFs will be a volume game, Ex-EPFO 19bps gross revenue yields, adds Rs500mn to profitability, net yield 11-12bps

- In ETF customers does not diversify the way they do in active funds

- ETF growth has been primarily from institutions, retail has started picking up

- Some distributors prefer ETFs but for conventional distributors have launched passive funds

B30

- 18% of assets as against 16% of the industry, B30 market share was flat in the quarter but expect to increase going ahead

- Execution has been strong, entry barriers are high but will continue to leverage strong distribution network of IFAs and digital network

Distribution

- Banca is coming off not much left and hence pushing other products, Investors are moving to direct, equity share of direct moved from 13% to 18%

Expenses

- Q4 increase in other expenses is one off, COVID times digital and technological infra, transitioned out to own IT infrastructure

Shares of Nippon Life India Asset Management Ltd was last trading in BSE at Rs.340.3 as compared to the previous close of Rs. 330.5. The total number of shares traded during the day was 38803 in over 942 trades.

The stock hit an intraday high of Rs. 343.3 and intraday low of 329. The net turnover during the day was Rs. 13126070.

Source : Equity Bulls

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