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Result Highlights

* Revenue – Management Fees was at Rs.2.6bn was better than our estimates of Rs2.45bn as AUM and yields both were better than our forecasts. While AUM Management fees were higher by 64% yoy, sequential growth was at 11%.  

* Yield on Management fees ‐ The Yield on Management fees was at 0.56%, which was a improvement of 2bps YoY, against our estimate of 0.52%. Increase can be attributed to 1) higher yields on NPS AUM and 2) higher share of equity AUM.

* Operating Profit ‐Operating profit came at Rs.1,123mn which was 10% lower than our estimates of Rs.1,249mn due to higher than expected operating costs and employee costs.  Employee costs in particular was a negative surprise.

* Profits – PAT stood at Rs.1,550mn v/s our estimates of Rs.1,386mn as weaker EBIDTA performance was more than offset by ahead of estimates other income.

Our view:

Since we have assumed coverage on UTI AMC in Q3 FY21 result update the stock has rallied 78%. We remain extremely positive on UTI AMC as 1) Industry AUM growth to be strong double digit, 2) gaining market share in the equity segment, 3) revival in debt market share, 4) impetus from higher yields in the NPS assets. We have raised estimates (13% in FY22, 8% in FY23) to factor in better than expected AUM performance in March 2021 and slightly lower employee costs given company’s guidance of flat employee costs for the year. EBIDTA margins to expand significantly from 36% in FY20 to 50.3% in FY23E, while ROE to expand from 10% in FY20 to 19.3% in FY23E driven by improved profitability and sustained high dividend payouts. Given the FY20‐23E earnings CAGR of 36%, we find FY23E P/E of 18.2x attractive. Retain BUY with a revised 1‐year target price of Rs1,197.

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