Hold Nippon Life Ltd : Steady performance amid weak flows - Emkay Global
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Steady performance amid weak flows
* NAM India reported ~11.6% yoy (+7.3% qoq) growth in MF QAAUM to Rs2,286bn in Q4FY21, mainly supported by stability in debt AUMs and rising demand for ETFs, while operating revenues witnessed a rise in revenue yields due to higher share of equity AUM. PAT came in line with expectation at Rs16.7bn.
* Going forward, though the quantum of outflows might subside, revenue yields are expected to be impacted due to change in portfolio mix toward rising share of ETFs over equity which in turn impacts profitability. We expect overall trend to improve in the coming quarters with the normalization of inflows.
* We like the AMC business due to limited credit risk attached; however, we remain concerned about volatility in revenues/profitability in the near term. We continue to remain confident of the company’s liquidity positioning during current volatile times considering healthy AUM mix, timely support from banks and strong parentage.
* We appreciate management’s efforts for the rationalization of expenses, which in turn will support profitability. However, gaining market share would be the key trigger for stock momentum. We introduce FY24 to our estimates and revise TP to Rs335 (Rs306 earlier), corresponding to 27x P/March’23E EPS. We maintain Hold and EW stance in EAP.
* Relative price chart Source: Bloomberg This report is solely produced by Emkay Global. The following person(s) are responsible for the production of the recommendation: Jignesh Shial jignesh.shial@emkayglobal.com +91 22 6624 2468 Anand Dama anand.dama@emkayglobal.com +91 22 6624 2480 Aman Jain aman.jain@emkayglobal.com +91 22 6612 1285 Shrishti Jagati shrishti.jagati@emkayglobal.com +91 22 6624 2485 -20 -10 0 10 20 30 200 235 270 305 340 375 Apr-20 Jun-20Aug-20 Oct-20 Dec-20Feb-21 Apr-21 Rs %
Nippon Life (LHS) Rel to Nifty (RHS) Focus remains on granularity of flows:
NAM India’s management has been upbeat about increasing flows from B30 and B100 cities. Management’s consistent efforts to acquire wealth in Tier-2 and Tier-3 cities should augur well for the company as these assets tend to be stickier. The contribution from B30 cities has remained healthy at 17.9% vs. industry average of ~16%. The company’s advanced technology platform has ensured smooth operations amid physical dislocation in the last quarter.
SIP flows depicting more realistic picture:
The company has restated its SIP inflow numbers, which are significantly lower than previously reported as the recognition of SIP has now shifted to actual receipt basis from accrual basis earlier. The SIP book of the company witnessed a steady decline over quarters to Rs6.6bn in Q4FY21 from Rs6.8bn in Q4FY20.
Outlook and valuation:
We appreciate management’s efforts for the rationalization of expenses, which in turn will support profitability. However, gaining market share would be the key trigger for stock momentum. We introduce FY24 to our estimates and revise TP to Rs335 (Rs306 earlier), corresponding to 27x P/March’23E EPS. We maintain Hold.
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