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Opex marring quarter is not a structural problem

Result Highlights

* Revenue: Revenue from operations at Rs 2950mn was up 4.6%/25.2% QoQ/YoY exceeding the growth of MF QAAUM at 0%/22% QoQ/YoY

* Share of Equity in AUM: Share of Equity in AUM (including Hybrid funds) at 43% was down -47 bps QoQ but up 278 bps YoY

* Share of B-30 in AUM: Share of B-30 at 23% was down -100 bps QoQ and flat YoY

* Channel mix: Share of Banks+ND, MFD and Direct channel was 9%, 27% and 64%, respectively in overall AUM

* Operating profit margin: Calculated operating profit margin for the quarter, at 38.8%, was down -848 bps QoQ and -601 bps YoY

Our view – Opex marring quarter is not a structural problem

Operating expenses evolved negatively for the quarter due to a variety of factors: Employee cost was Rs 0.74bn in 4QFY21, which increased to Rs 1.15bn in 4QFY22, a difference of Rs 0.41bn. Rs 0.33bn of this differential was due to variable pay. Other opex was an extra Rs 0.16bn compared with quarterly average run rate for 9MFY22. Rs 0.07bn of the extra cost came from additional trail fees, Rs 0.02bn from charges paid to PFRDA, Rs 0.02bn from payment to BCG and Rs 0.04bn from cost related to digital initiatives. On the positive side, 96 employees are expected to retire over FY23-24. The saving due to this would amount to Rs 0.41bn and about half of this would come in FY23. Overall revenue yield for domestic business was maintained at 41 bps, similar to levels seen in 3QFY22: The yield for the domestic equity business is 85-90 bps. The yield for the international business is about 55 bps. We maintain ‘BUY’ rating on UTI with a revised price target of Rs 1248: We value UTI at 23x FY23 P/E for an FY21-24E EPS CAGR of 19.8%.

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