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Expanding product strategy holds promise

HDFC Asset Management (HDFC AMC) reported lower than expected numbers in Q4FY21 due to lower yields QoQ (despite higher equity mix). Business levers ahead include: 1) building upon the performance, which can improve flows as indicated by the management; 2) new product pipeline; and 3) possible industry momentum given the net inflows and increase in SIP witnessed in Mar’21. Maintain BUY with a revised target price of Rs3,284 (earlier: Rs3,500) based on FY23E core EPS of Rs66.4 plus cash and investments of Rs296 /share, which takes into account the drop in yields and possible rise in operating costs.

* Q4FY21 disappointed on yields sequentially leading to earnings miss.

Despite increase in equity mix (41.2% in Q4FY21 from 39.6% in Q3FY21) on 6% QoQ higher AUM (Rs4.1trn from Rs3.9trn), the average revenue yield in Q4FY21 was 48.8bps vs 49.5bps in Q3FY21. This could be a function of scheme-specific AUM growth or flow vs stock movement in equity. Total revenues rose only 4% QoQ to Rs5bn. Total operating costs were up 11% YoY due to higher employee costs (including the impact of ESOP cost of Rs73.5mn) and higher other expenses (up 9% QoQ). Other income declined 62% QoQ resulting in 14% QoQ decline in PAT. Core PAT (excluding the impact of other income) grew 11% QoQ.

* New MD (Mr. Navneet Munot) outlines more definitive outlook for growth.

The strategy includes: 1) launch of products in passive categories like NIFTY NEXT50 index fund, sector funds like banking & finance, thematic and international funds. Company indicated that there has been a turnaround in performance from Oct’20 onwards and the results thereof are expected to follow. The induction of new fund managers has yielded designed results (they now manage ~15% of the AUM and have received positive response).

* Ex-ETF market share stable:

HDFC AMC’s overall market share stood at 12.9% in Q4FY21 vs 13.1% / 13.7% in Q3FY21 / Q4FY20. In ex-ETF terms, its market share remained stable in Q4FY21 at 14.1% vs 14.2%% / 14.6% in Q3FY21 / FY21. In terms of equity (ex-ETF), Q4FY21 market share stood at 13.3% vs 13.6% / 15.2%, in Q3FY21 / Q4FY20.

HDFC AMC witnessed an improvement in debt market share as on Q4FY21 as its market share stood at 14.4% vs 13.8% / 13.1% in Q3FY21 / Q4FY20. In terms of liquid QAAUM 16.7% vs 17.2% / 16.9% in Q3FY20 / Q4FY21. In unique clients market share, HDFC AMC witnessed a decline from 25% in Q3FY21 to 23% in Q4FY21. In systematic transactions, Mar’21 saw an inflow of Rs10.4bn while SIP AUM stood at Rs567bn. In distribution mix in terms of equity AUM, share of direct channel / MFDs, HDFC AMC stood at 20.2% / 41.7% in Q4FY21 (+100bps / +140bps YoY) while banca / national distributors witnessed decline of 220bps / 90 YoY.

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