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Steady operational performance driven by muted opex

NAM reported an operating PBT of INR 2bn (+27% YoY, -3% QoQ) driven by moderation in opex (-4% YoY, +3% QoQ) and operating revenue growth of +12% YoY/flat QoQ. While lower other income resulted into a PAT of INR 1.75bn (+5% YoY/+0.5% QoQ). Opex/QAAUM has improved to 19bps (-6bps YoY) and management indicated that headroom for further improvement remains limited. Overall MF QAAUM growth was moderate at +1% QoQ (+24% YoY) as equity and debt segments contracted by -1% and - 3% QoQ respectively, while ETF segment grew by 12% QoQ. Monthly SIP flows improved to INR 7.3bn vs INR 6.9bn in 3QFY22. Top-line yields for NAM declined marginally to 48bps (- 0.5bps QoQ) and are expected to remain under pressure due to size based TER cuts, changing product mix and old assets that earn higher yields are being replaced by new assets. Overall AUM market share improved by 26bps YoY to 7.4%, however market share in equity continues to decline (6.3% as of Mar’22, -64bps YoY). Management highlighted that they are witnessing an uptick in equity inflows on the back of improvement in fund performance in past 1 year and this should aid them in improving their market share in the equity segment. NAM is currently trading at 24x NTM PE (12% discount to its LTA), we maintain BUY with a TP of INR 435, valuing NAM at 28x FY24E EPS. Sharp deterioration incrementally in fund performances and/or prolonged period of outflows is a key risk to our estimates.

Moderate AUM growth; SIP flows increasing: During 4QFY22, overall MF QAAUM growth was +1% QoQ (+24 % YoY) as equity and debt segments contracted by -1% and -3% QoQ respectively, while ETF segment grew by 12% QoQ. In the ETF space, NAM plans to leverage its first mover advantage and currently it has the largest bouquet of 25 ETFs in the industry; ETF QAAUM stands at INR 558bn (14% market share). Monthly SIP flows improved to INR 7.3bn in Mar’22 (vs INR 6.9bn in Dec’21) while market share of SIP flows stood at 5.9% in Mar’22 (vs 6.1% in Dec’21) and SIP AUM increased to INR 514bn (+30% YoY). Overall AUM market share improved by 26bps YoY to 7.4%, however market share in equity continues to decline (6.3% as of Mar’22, -64bps YoY). Management stated that they expect market share in the equity segment to increase on account of improving fund performance

Core operating margins remain stable aided by opex moderation: Operating revenue yields declined marginally in 4QFY22 to 48bps (-0.5bps QoQ) and are expected to remain under pressure due to size based TER cuts, changing product mix and old assets that earn higher yields are being replaced by new assets. However, operating expenses continue to be muted growing at (-4.2% YoY, +3.4% QoQ). Core operating margins remained stable at 28bps (flat YoY, -1bps QoQ). Other income during the quarter stood at INR 0.35bn (- 43% YoY) due to MTM losses in debt investments owing to unfavourable yield movements

Valuation: NAM is trading at 24x NTM PE (12% discount to LTA) and we believe the stock’s price performance is contingent on the a) company’s market share gains/losses and b) sustained improvement in core operating performance. We believe unless the industry witnesses further acceleration of outflows / cancellation of SIPs, there is a limited downside to the stock price and we remain constructive over the medium term. Maintain BUY with a TP of INR 435, valuing NAM at 28x FY24E EPS

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