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Strong execution; building on growth optionalities

The combination of a) strong revenue growth of 10% YoY and 12% QoQ in Q4FY21 as well as strong cost performance in FY21 (15% YoY decline in operating expenses in FY21), b) growth optionalities through non-MF product portfolio (AUM Rs1.32trn) and c) improvement in retail traction (of the total 2mn unique investors added by MF industry in FY21, 0.9mn were added by NAM) are the healthy business indicators for Nippon Life Asset Management (NAM). Maintain BUY with a revised target price of Rs396 (earlier: Rs385) based on 35x core EPS of Rs9.8 and add cash & investments of Rs54 /share.

* Q4/FY21 outperformed expectations on core level: NAM reported revenue growth of 12% QoQ driven by 7% QoQ growth in QAAUM and better yields. Overall, operating expenses declined 15% YoY in FY21. However, in Q4FY21, operating expenses rose 12% QoQ on the back of higher other expenses (26% QoQ) while employee costs stood at Rs654mn (down 2% QoQ). Other income declined sharply by 54% QoQ resulting in a PAT decline of 21% QoQ. Core PAT (excluding the impact of other income) grew 11% QoQ.

* NAM expects to have a competitive edge in the passive segment: The intrinsic importance of volumes in ETF is lending a meaningful headstart to NAM’s passive strategy. Company has the industry’s largest bouquet of 22 ETFs (AUM of Rs373bn with 13% market share) spread across equities, debt and gold. NAM has the industry’s highest investor folios (~42% market share in ETF folios) and has witnessed sustained increase in its HNI share. With 72% market share in ETF volumes on NSE and BSE in Q4FY21, NAM is poised to play the volume game in the segment. Although profitability is low, higher volumes in the ETF segment can deliver Rs350mn-400mn (based on 10bps yield) to the profitability

* Non-MF AUM and new initiatives continues to provide growth optionalities: NAM manages assets worth Rs1.26bn related to government mandates. In the AIF segment, it has raised commitments of Rs37bn across funds as on Mar’21. On the offshore business side, NAM manages and provides advisory services towards AUMs of Rs70bn and Rs33bn respectively. Company has also signed an LoI with Cathay SITE (Taiwan’s largest asset manager) to expand its product portfolio to Indian and international investors. The LoI also envisages joint exploration of areas for developing, managing, marketing and distributing bespoke investment products in India and Taiwan.

* Retail traction gradually improving. NAM added 0.9mn new users in FY21 vs 2mn added by the industry. It has a higher composition of retail assets (28% as at Mar’21) in its AUM vs industry average of 22%. Its number of folios grew from 8.7mn in FY20 to 10mn in FY21. This should help further build momentum. SIP book however declined from Rs97bn in FY20 to Rs79bn in FY21.

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