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Focus on client accretion, product mix to aid growth…

Nippon Life AMC posted a steady operational performance with sequential improvement in topline and pick-up in AUM growth. Revenue from operations was up 12.5% QoQ, 10.0% YoY to | 302 crore on the back of improved revenue yields, which were up 3 bps QoQ to 0.53% of AUM. Revenue yields improved QoQ as proportion of equity AUM increased.

Other income was at | 60 crore vs. | 130 crore QoQ and MTM loss of | 125 crore YoY. Opex to AUM increased marginally from 24 bps to 25 bps both on QoQ and yearly basis, primarily driven by 41% rise in other expenses mostly related to investment in technology and digital infrastructure. PAT fell 21% QoQ to | 166 crore due to volatile other income despite steady operational revenue.

Industry AUM increased from | 31 lakh crore as of Q3FY21 to | 31.4 lakh crore as on Q4FY21, largely led by pick up in equity markets and offset by outflow in debt segment. Equity related AUM increased 6.5% QoQ at | 13 lakh crore. Proportion of equity AUM was at 41% vs. 39% QoQ. Debt schemes witnessed outflow thereby declining ~4% QoQ. SIP inflows increased QoQ from | 8400 crore to | 9200 crore.

For Nippon AMC, QAAUM increased 11.6% YoY, 7.3% QoQ to | 2.28 lakh crore. Healthy rise in AUM was driven by 12.8% QoQ uptick in equity AUM. Equity contribution to total AUM increased from 39% to 41% QoQ. AUM in liquid schemes saw decline of 8% QoQ and 16% YoY. MTM gains and increased institutional flows aided AUM growth.

The company managed to arrest quantum of fall in market share in equity segment, which declined marginally by 4 bps to 6.95% QoQ while debt AUM market share was down 6 bps QoQ to 6.49%. Monthly SIP flows have been steady on a QoQ basis at | 660 crore while the annualised book was at | 7900 crore. Digital contribution towards new SIP was at 59%

Valuation & Outlook

Focus on passive segment through ETF (market share of 13%) with substantial market share in terms of number of investor folios and volume on exchange (~72% market share in volume) provides advantage in AUM growth, though profitability remains low. Robust client accretion led by strong distribution and digital focus remains positive for traction in AUM ahead. Focus on non MF segment through managed AUM of | 1.26 lakh crore to support revenue and earnings. Sebi came out with a circular stating 20% of compensation of key employee of AMC to be paid in terms of MF units. Implementation of circular in its existing forms could lead to higher expense but clarity is awaited. We continue to remain positive on the business model and expect earnings to grow at 7% CAGR in FY21-23E to | 763 crore. Consequently, we value the business at ~7.6% of FY23E MF AUM and revise our target price | 360 (earlier | 300). We maintain HOLD

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