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Result Highlights

* Revenue – Management Fees was at Rs.5bn was lower than our estimates of Rs.5.32bn. Management fees were higher by 6% yoy and witnessed a growth of 4% on sequential basis.

* Yield on Management fees ‐ The Yield on Management fees was at 0.49%, which was a deterioration of 3bps YoY, against our estimate of 0.51%.  

* Operating Profit  ‐Operating profit came at Rs.4bn which was lower than our estimates of Rs.4.4bn due to lower than estimated yield and higher than expected employee cost.   

* Profits – PAT stood at Rs.3.1bn v/s our estimates of Rs.3.9bn led by significantly lower ther income and weaker operating performance.  

* Valuations ‐ The stock currently trades at FY23E P/E of 31x.  

* Dividend: The Board of Directors have recommended a dividend of Rs34 per share.

Our view:

HDFC AMC reported a weaker than expected performance led by sequential decline in yields despite favorable product mix, higher employee costs and fall in other income. Market share loss has continued but with fund performance improving, the company is hopeful of a recovery in market share going ahead. This coupled with our house view of strong equity market returns will lead to higher equity share driving revenue and profitability growth.

ESOP costs will restrict margin expansion. Impact of higher employee costs has been offset by better AUM performance in Feb and March 2021. Resultantly, while there is no change in earnings for FY22, our FY23E earnings have been cut marginally by 2%. Valuations at FY23E P/E of 31.8x leaves limited room for upside. Retain ADD rating with a 1‐year target of Rs3,245 (Rs3,302 earlier)

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