Buy ICICI Pru AMC Ltd for the Target Rs 3,800 by Emkay Global Financial Services Ltd
ICICIAMC delivered steady performance in 2QFY27, with MF QAAUM growing ~4% qoq to Rs11.6trn, while revenue yields improved to 57.5bps, driving ~7% sequential revenue growth. EBITDA margin improved 20bps sequentially to 72.6% and was higher than our estimate, led by better-than-expected revenue growth. PAT at Rs8.89bn declined ~8% sequentially owing to lower other income given negative MTM movements but was ~4% higher than our estimate. The management mentioned that while the company saw some redemption pressure given market volatility, gross flows remained largely steady. MF revenue yields improved during the quarter, led by multiple factors, while alternate yields improved qoq, led by a change in the mix of alternate AUM. The management mentioned that it sees opportunities in the small-cap space and will gradually open up the mid-cap segment at an appropriate time. Baking in the 2Q developments, we tweak our estimates marginally, resulting in largely unchanged PAT over FY27-29E. We maintain BUY and Sep-27E TP of Rs3,800, implying FY28E PER of ~43x
Steady quarter; yield improvement drives higher revenue
During 2QFY27, AUM at Rs11.6trn grew ~4% qoq, while maintaining the second-highest market share of 13.3%. Revenue yields at 57.5bps improved qoq vs 56.3bps in 1QFY27, led by improvement in MF and alternate yields, driving revenue to Rs16.74bn (+7% qoq) and beating our estimate by ~3%. Other income dipped significantly to Rs169mn (from Rs1.8bn in 1QFY27). Employee cost at Rs2.12bn grew 4% sequentially during 2QFY27, while other expenses at Rs1.13bn grew 9% qoq. As a result, EBITDA at Rs12.15bn rose 7% qoq, largely owing to healthy revenue growth. EBITDA margin stood at 72.6% and was ahead of our estimate of 72.4%. PAT at Rs8.89bn increased 6% yoy and dipped 8% sequentially, driven by lower investment income, beating our estimate by 4%.
Gross sales stable; addressing mid/small-cap gaps a long-term effort
The management mentioned that the company saw redemption pressure in certain schemes, including hybrid schemes, while gross sales was largely steady. The management acknowledged that the company has not built a large franchise in the midand small-cap categories, given its positioning as a conservative AMC with higher share of hybrid funds. Ahead, the management sees building the mid- and small-cap segment as a 5-7-year effort. Further, it is currently pushing large-cap funds on better risk-reward and has opened up the small-cap category given the opportunity. The management mentioned that the company would look to gradually open up the mid-cap space as well, at an appropriate time. On the alternates side, in real estate funds, pre-leased office yield funds fit the company’s risk framework, and it plans to scale this category.
We maintain BUY and Sep-27E TP of Rs3,800
To bake in the 2Q developments, we tweak our estimates, resulting in largely unchanged PAT over FY27-29E. Led by its strong brand and distribution, ICICIAMC is poised to drive profitable AUM growth. We maintain BUY and Sep-27E TP of Rs3,800, implying FY28E PER of 43x.
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