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UTI maintains yield by cutting commission rates

Result Highlights

* Revenue: Revenue from operations at Rs 2804mn was up 7.2%/40.6% QoQ/YoY whereas the growth of QAAUM was 12%/35% QoQ/YoY

* Share of Equity in AUM: Share of Equity in AUM (excluding Hybrid funds) at 30% was up 138 bps QoQ and 491 bps YoY

* Share of B-30 in AUM: Share of B-30 in AUM at 23% was down 200 bps QoQ and 100 bps YoY

* Channel mix: Share of Banks+ND, MFD and Direct channel was 9%, 28% and 63%, respectively in overall AUM

* Operating profit margin: Calculated operating profit margin for the quarter, at 47.6%, was up 305 bps QoQ and 757 bps YoY

Our view – UTI maintains yield by cutting commission rates

UTI managed to maintain yield at 43 bps for 1HFY22 by passing on most of the TER decline to distributors: Management stated that yield had not risen despite the rise in share of Equity in AUM as a number of factors exerted pressure on yield. They stated that there is slightly lower management fees for the new money that has come in and also that TER tends to decrease with increasing AUM. For every Rs 50bn rise in AUM, TER tends to decline by 5 bps. UTI is reducing commission and protecting margin and will be able to deliver a yield of 44-45 bps in FY22, similar to levels in FY21.

Management stated that employee cost in FY22 would remain flat in comparison to FY21: Employee cost remaining flat implies cost saving as normally there would have been a rise in employee cost. There will be the Rs 0.75-0.8bn saving due to natural retirement and attrition with most of the retirement to happen in 2024-25.

We maintain ‘BUY’ rating on UTI with a revised price target of Rs 1401: We value UTI at 25x FY23 P/E for an FY21-24E EPS CAGR of 21%.

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