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Industry hyper-competition is transient

Result Highlights

* Revenue: Revenue from operations at Rs 5497mn was up 1.4%/14.1% QoQ/YoY, broadly in line with the growth of QAAUM at 1.9%/14.8% QoQ/YoY

* Share of Equity in AUM: Share of Equity in AUM (including Hybrid funds) at 45.7% was up 150 bps QoQ and 610 bps YoY

* Share of B-30 in AUM: Share of B-30 in AUM at 15.6% was up 20 bps QoQ and 120 bps YoY

* Channel mix: Share of Banks, MFDs, NDs and Direct channel was 13.6%, 41.4%, 23.4% and 21.6%, respectively in Equity AUM

* Operating profit margin: Operating profit margin for the quarter, at 75.4%, was down 41 bps QoQ and -466 bps YoY

Our view – Industry hyper-competition is transient

Management explained that it was sub-optimal to chase market share when the industry was in the throes of irrational hyper-competition: The pressure on yield has magnified due to gross sales becoming a higher share of outstanding AUM. The industry is making 70 bps yield on equity AUM but on new flows, it is making 30-40 bps. The industry is realizing this and has started to price products better. Furthermore, as more players get listed, the margin discipline would improve.

HDFC AMC maintained cost control leadership among listed asset managers and flagged stability in this regard: The cost to AUM has been at 12 bps for the last 3 quarters. Management opined that cost to AUM should stay at this level for 1.5-2 years before it goes down as the AMC is investing in tech and people.

We maintain ‘ADD’ rating on HDFCAMC with a revised price target of Rs 2530: We value HDFCAMC at 32x FY23 P/E for an FY21-24E EPS CAGR of 14.9%.

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