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Steady quarter; equity market share witness improvement

HDFCAMC reported a steady quarter with operating PBT of INR 3.7bn (+2% YoY, -1% QoQ) on account of muted growth in core revenues and opex (+3% YoY and +4% YoY resp.) Overall MF QAAUM declined -4% QoQ (flat YoY) as debt MF QAAUM de-grew by 12% QoQ (-24% YoY) while equity MF QAAUM was flat QoQ (+16% YoY). Positively, core revenue yields improved to 50bps (vs 48bps QoQ) driven by improvement in proportion of higher yielding equity MF QAAUM in overall MF QAAUM to 52.1% (+200bps QoQ) while debt MF QAAUM mix declined to 22.3% (-210bps QoQ). Overall AUM and equity AUM market share witnessed marginal improvement to 11.2% and 11.5% resp. (+11bps QoQ and +7bps QoQ resp.). Management indicated that this was largely on account of improving share of HDFC AMC in net inflows and should sustain going ahead on the back of improved scheme performance. Further, HDFCAMC’s SIP flows increased to INR 12.8bn in Jun’22 (vs INR 12.3bn in Mar’22). We have moderated our AUM growth assumptions driven by recent fall in equity markets and outflows in debt segment and now build in AUM growth of 2.9%/19.6% over FY23/24E. Our core PBT growth estimates for FY23/24E are at flat/+9% YoY for FY23/24E. HDFCAMC is currently trading at 29x P/E (NTM) implying a 24% discount to its historical avg. valuations and we believe the stock’s price performance is highly contingent on the company’s market share gains/losses. The new leadership has taken steps in the right direction and we believe favourable outcomes over the next 12-18months should see the stock revert its underperformance relative to peers. Maintain BUY with a revised TP of INR 2,275, valuing HDFCAMC at 33x FY24E EPS.

* Equity market share sees marginal improvement: Overall MF QAAUM declined -4% QoQ (flat YoY) as debt MF QAAUM de-grew by 12% QoQ (-24% YoY) while equity MF QAAUM was flat QoQ (+16% YoY). Overall AUM and equity AUM market share witnessed marginal improvement to 11.2% and 11.5% resp. (+11bps QoQ and +7bps QoQ resp.) while debt market share was steady at 13.8% (+3bps QoQ). Management indicated that this was largely on account of improving share of HDFC AMC in net inflows and should sustain going ahead on the back of improved scheme performance. Further, HDFCAMC’s SIP flows increased to INR 12.8bn in Jun’22 (vs INR 12.3bn in Mar’22). We have moderated our AUM growth assumptions driven by recent fall in equity markets and outflows in debt segment and now build in AUM growth of 2.9%/19.6% over FY23/24E

* Steady operating quarter: Core revenue yields improved to 50bps (vs 48bps QoQ) driven by improvement in proportion of higher yielding equity MF QAAUM in overall MF QAAUM to 52.1% (+200bps QoQ) while debt MF QAAUM mix declined to 22.3% (- 210bps QoQ). However, management indicated that the yield decline trajectory should continue going ahead as new AUM replace higher yielding older AUM; though the pace of fall should moderate. Operating PBT was at INR 3.7bn (+2% YoY, -1% QoQ) on account of muted growth in core revenues and opex (+3% YoY and +4% YoY resp.). Thus, core PBT margins improved to 36bps (+1bps QoQ). Other income was impacted by lower MTM gain on debt and MTM losses on equity investments.

* Valuation and view: HDFCAMC is currently trading at 29x P/E (NTM) implying a 24% discount to its historical avg. valuations and we believe the stock’s price performance is highly contingent on the company’s market share gains/losses. Maintain BUY with a revised TP of INR 2,275, valuing HDFCAMC at 33x FY24E EPS.

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