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Undemanding valuations; Reiterate BUY

UTI AMC has corrected by c.22% from its peak post 3QFY22 results. The correction was driven by a sharp contraction in top-line MF yields and management guidance of further moderation in FY23E. However, we maintain our positive stance on the stock as core fundamental positives are still in place: a) AUM growth story to continue with improvement in equity and debt market share (AUM CAGR of 22% over FY21-24E) and b) improvement in operating profitability driven by cost moderation and increase in top-line revenues aided by non-MF businesses. UTI AMC trades at a valuation of 15.5x FY24E P/E which is at a discount of 40%/28% to HDFCAMC/ NAM’s valuations. We expect the future price performance to be driven by a) strong AUM growth driven by superior equity fund performance and renewed focus on distribution and b) improvement in operating profitability driven by cost moderation. We re-iterate UTI AMC as our top-pick in the AMC space with a TP of INR 1,350 valuing it at 22.0x FY24E P/E. A reverse-DCF analysis on our TP of INR 1,350 indicates a conservative AUM and earnings CAGR estimate of 14% and 11% respectively over the next 10 years; indicating upside risks to our TP.

Positive drivers still well in place: UTI AMC reported a sharp decline of 4bps in MF revenue yields for 3QFY22 results and management provided guidance of 2-3bps further yield moderation in FY23E. However, core fundamental positives for UTI AMC are still well in place which should lead to improvement in operating profitability for UTI AMC (core PBT to avg. AUM at 24bps in FY24E vs 14bps in FY21). We continue to expect the opex moderation trajectory to continue going ahead aided by a) employee costs moderation and b) operating leverage as AUM growth expectations continue to be strong (AUM CAGR of 22% over FY21-24E). Further, non-MF business revenues are also seeing healthy traction aided by a) higher TER on NPS AUM and b) strong growth in international AUM (+59% YoY).

Strong momentum in MF AUM continues: Overall MF QAAUM has increased to INR 2.25trn (+36% YoY) driven by strong growth in equity MF QAAUM (+53% YoY) and ETF QAAUM (+67% YoY). UTI AMC’s equity and overall market share was at 4.8%/5.8% (+10bps/+11bps YoY) as of Feb’22 and UTI AMC remains on a path to regain lost market share driven by a) superior scheme performance and b) renewed focus on distribution front. Additionally, monthly SIP flows continue to improve (INR 4.7bn for Dec’21) and SIP AUM was at INR 181bn (+38% YoY).

Valuation and view: UTI AMC trades at a valuation of 15.5x FY24E P/E which is at a discount of 40%/28% to HDFCAMC/ NAM’s valuations. We expect the future price performance to be driven by a) strong AUM growth driven by superior equity fund performance and renewed focus on distribution and b) improvement in operating profitability driven by cost moderation. We re-iterate UTI AMC as our top-pick in the AMC space with a TP of INR 1,350 valuing it at 22.0x FY24E P/E. A reverse-DCF analysis on our TP of INR 1,350 indicates a conservative AUM and earnings CAGR estimate of 14% and 11% respectively over the next 10 years; indicating upside risks to our TP.

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