Buy Aditya Birla Sun Life AMC Ltd For Target Rs.728 - ICICI Securities
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Well-entrenched asset management franchise; play on financialisation
Aditya Birla Sun Life AMC (ABSLAMC) remains one of the top asset managers of India with a well-entrenched franchise as evident from its ~Rs3trn AUM, >67,000 distributors and presence in 280+ locations across India. The overall AUM/equity AUM share of 7.8%/6.6% and retail AUM share of 6.8% (based on Nov’21 AMFI data) underpin the strong track record of the company. The business strength is complimented by Rs117bn worth of alternate assets (Sep’21) and diversified distribution across 100+ banks, 240+ national distributors and 70+ digital fintech partnerships. Retail folios have clocked 17.4% CAGR between Sep’16 and Sep’21. We initiate coverage with BUY rating and a target price of Rs728 based on 30x FY23/24E core EPS (excluding impact of other income) of Rs19.2/22 and cash of Rs80/92 per share. We ascribe 25:75 weightages to FY23/24 estimates.
* We expect 14.5% core earnings CAGR over FY21-24E with an average RoE of 32.6%. This trajectory will be driven by 16% MF AAUM CAGR and 4bps decline in yield between FY21-24E. The operating cost is expected to increase at a 9% CAGR. As a result, EBITDA is estimated to clock 14% CAGR to reach Rs8.9bn in FY24E.
* Market share and fund performance close to an inflection point. In terms of overall market share, ABSLAMC lost 95bps in FY20 while market share loss in FY21 / FY22-TD (over FY21) is 68bps / 66bps. In terms of equity AUM, the market share dropped by 107bps in FY20, while FY21 / FY22-TD has witnessed a drop of 51bps / 55bps. Debt AUM has shown a steady performance, given that the fall in the market share in FY21 / FY22TD is only 42.5 / 7bps compared to 50bps in FY20. On a oneyear basis, ABSLAMC’s liquid and debt schemes representing major part of its segmental AUM has outperformed its peers (refer page 12 for further details).
* Can yield cuts pose a significant threat to the RoE profile? Even with a 9bps cut in yield from FY22 to FY25, we expect 6% earnings CAGR and 27% RoE which will still be very attractive. However, equity AUM growth and cost control could likely provide enough levers to offset the impact of reducing yields.
* Strategy is to improve (1) customer outreach, advocacy, (2) portfolio performance and differentiation, (3) leveraging digital platforms, (4) sales productivity and efficiency and (5) building alternate asset class. ABSLAMC launched 4 index funds raising Rs7bn in H1FY22 and has 8 new passive products in the pipeline.
* AMC space has seen correction in valuation multiples which presents an opportunity. The theme of financialisation, stock nature and fixed cost nature of business bolster the investment thesis. The current reduction in trading multiples of 20-25% for most AMC players has been disparate with observable fundamental trends like increasing monthly flows, monthly SIPs and SIP folios.
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