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Published on 1/04/2020 12:01:26 PM | Source: Emkay Global Financial Services Ltd

Hold Nippon Life Ltd For Target Rs. 232 - Emkay Global

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Uncertain times ahead

* Nippon Life Asset Management (NAM India) has witnessed volatile trends recently, with a sharp decline in equity AUMs, drying inflows (debt/equity) due to the slowing economy and rising redemptions as the fear of Covid-19 is gradually gripping the markets.

* Revenue yields are expected to be impacted amid declining AUMs, which in turn, would impact profitability. However, management remains upbeat over their liquidity positioning backed by healthy AUM mix, timely support from banks and strong parentage.

* Going forward, though the quantum of outflows might subside with a significant liquidity infusion from the Reserve Bank, the current economic slowdown will surely impact future inflows and revenue generation for the company.

*  We downgrade the stock to Hold from Buy, with a revised TP of Rs232 (Rs398 earlier), corresponding to 21x P/FY22E EPS with 26% RoEs for FY22E. We cut our earnings estimate by 10.3%/1% for FY20/21E due to a decline in yields. We downgrade the stock to EW from OW in NBFC EAP.

 

Current volatility and economic slowdown to impact inflows and revenues: Being the largest retail AMC with retail/total MF AUM of ~26% and strong SIP flows, NAM India’s management has been upbeat on increasing flows from B30 and B100 cities. Management’s consistent efforts to acquire wealth in Tier-2 and Tier-3 cities should augur well for the company as these assets tend to be stickier. In the past few weeks, the company has witnessed high volatility in equity AUMs, coupled with drying inflows (debt as well as equity) and elevated redemptions as the fear of Covid-19 is gradually gripping the markets. Revenue yields are expected to be impacted amid declining AUMs, which in turn, would impact profitability. However, management remains upbeat over their liquidity positioning backed by healthy AUM mix, timely support from banks and strong parentage.

 

Liquidity position upbeat; technology advancement supported smooth operations during challenging times: NAM India managed to maintain sufficient liquidity in the past month amid volatile markets and rising outflows due to its strong parentage, better AUM mix and decent support from their banking partners. The company’s advanced technology platform has ensured smooth operations amid physical dislocation in the past few weeks.

 

Outlook and valuation:

Going forward, though the quantum of outflows might subside with significant liquidity infusion from the Reserve Bank, the current economic slowdown will surely impact future inflows and revenue generation for the company.

We downgrade the stock to Hold from Buy, with a revised TP of Rs232 (Rs398 earlier), corresponding to 21x P/FY22E EPS with 26% RoEs for FY22E. We cut our earnings estimate by 10.3%/1% for FY20/21E due to a decline in yields. We downgrade the stock to EW from OW in NBFC EAP.

 

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