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NAM reported an operating PBT of INR 1.9bn (+13% YoY, -3.2% QoQ; -4% vs JMFe) on account of a) moderation in top-line yields to 45bps (-3bps QoQ) and b) elevated opex (+8% QoQ, +11% YoY). Management indicated that equity yields continue to see moderation as new lower yielding AUM replaces old higher yielding AUM; further, mgmt. took a conscious call to reduce TER for debt funds with a view to increase volumes. Overall MF QAAUM witnessed a growth of +7% QoQ (+12% YoY) with strong growth in equity and ETFs on back of buoyant markets; further, even debt AUM witnessed a growth of +24% QoQ. Monthly SIP flows improved to INR 12.2bn in Jun’23 vs INR 11.2bn in Mar’23 and SIP flow market share improved to 8.3% (+50bps QoQ). While NAM’s equity AUM market share has been steady around 6.3-6.4% for the last 5-6 quarters, management indicated that they are witnessing an uptick in net equity inflows market share (around 20% this time). While the recent strong flow market share trend is on the back of small-cap/mid-cap category flows (where industry is seeing strong flows and NAM has good standing), we remain watchful on more sustainable market share gains going ahead. NAM has seen a sharp bounce back since the lows seen post SEBI discussion paper on proposed TER changes given that SEBI has indicated that a revised discussion paper is in works. While there is a broad expectation that the new discussion paper will be much more positive for AMCs, we remain watchful of the key changes. Maintain BUY with a TP of INR 365.

* Core PBT driven by top line yield improvement: Operating revenue yields dropped to 45bps (-3bps QoQ) on account of a) continued moderation in equity yields as new lower yielding AUM replaces old higher yielding AUM and b) conscious call to reduce TER for debt funds with a view to increase volumes. Further, opex was elevated (+8% QoQ, +11% YoY) driven by a) increase in marketing and other discretionary expenses and b) employee opex reverting back to normalised levels (after a fall in 4Q on account of bonus provision reversals). Thus, operating PBT of INR 1.9bn (+13% YoY, -3.2% QoQ) was below JMFe (-4% vs JMFe) with core PBT margins seeing a decline of 3bps QoQ to 25bps. Other income was strong at INR 1.2bn (vs INR 0.4bn QoQ) driven by MTM gains on NAM’s own portfolio investments.

* AUM growth inches up; market share gains key: Overall MF QAAUM witnessed a growth of +7% QoQ (+12% YoY) with strong growth in equity and ETFs on back of buoyant markets; further, even debt AUM witnessed a growth of +24% QoQ. Monthly SIP flows improved to INR 12.2bn in Jun’23 vs INR 11.2bn in Mar’23 and SIP flow market share improved to 8.3% (+50bps QoQ). While NAM’s equity AUM market share has been steady around 6.3-6.4% for the last 5-6 quarters, management indicated that they are witnessing an uptick in net equity inflows market share (around 20% this time). While the recent strong flow market share trend is on the back of small-cap/mid-cap category flows (where industry is seeing strong flows and NAM has good standing), we remain watchful on more sustainable market share gains going ahead.

* Valuation: NAM has seen a sharp bounce back since the lows seen post SEBI discussion paper on proposed TER changes given that SEBI has indicated that a revised discussion paper is in works. While there is a broad expectation that the new discussion paper will be much more positive for AMCs, we remain watchful of the key changes. Maintain BUY with a TP of INR 365.

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