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Riding on positive momentum

Asset management companies (AMCs) are in a positive momentum with increase in equity mix and strong growth in AUM for two successive quarters now. Beyond robust capital market performance, this is also driven by: (1) equity flows, which have been positive for seven months now; (2) rising SIPs (average SIP flow has risen from Rs78bn in Q3FY21 to Rs99.6bn in Q2FY22); and (3) increase in number of MF folios (FY22-TD MF industry added 13.7mn folios vs 8.2mn folios added in FY21). We expect YoY/QoQ EBITDA growth of 12%/7.6%, 55%/19%, 95%/23% for HDFC AMC, Nippon Life AMC, UTI AMC respectively, distinguished primarily by AUM growth. While improving equity mix should theoretically lift yields, we have seen this often does not play out due to difference in fund size composition, higher trail commission for new assets vs legacy assets, and varying intensity of commission payouts. For CAMS, we expect YoY/QoQ earnings growth of 47/14%. Maintain BUY on UTI AMC, ADD on NAM and CAMs, and HOLD on HDFC AMC.

* Movement in equity market share: UTI improves while HDFC witnesses decline: Based on AMFI monthly AUM data, HDFC AMC equity AAUM market share declined from 12.7% in Q1FY22 to 12.1% in Q2FY22. The same for NAM declined from 6.9% in Q1FY22 to 6.7% in Q2FY22, and for UTI it improved from 4.7% in Q1FY22 to 4.8% in Q2FY22

* Movement in debt market share: UTI witnesses decline while HDFC and NAM see improvement: HDFC AMC’s debt AAUM market share increased to 14.6% in Q2FY22 from 14.4% in Q1FY22. The same for NAM increased to 7.6% in Q2FY22 from 7.2% in Q1FY22, while for UTI it dipped to 3.7% in Q2FY22 from 3.9% in Q1FY22..

* Q2FY22 estimates for AMCs: HDFC AMC / NAM / UTI AAUM grew their respective AAUMs by 5% / 11% / 12% on QoQ basis in Q2FY22. Driven by strong AAUM growth and operating leverage benefit, we expect HDFC / NAM / UTI to report increase in their operating margins. We expect HDFC / NAM / UTI operating margins (% of AAUM, annualised) at 37.4bps / 31.8bps / 26.9bps, up 0.8bps / 2.36bps / 2.4bps respectively. We also estimate HDFC AMC / NAM / UTI to report core PAT QoQ growth of 8%, 17% and 23% respectively. Comparative valuations and positive cost performance remain attractive triggers for UTI.

* Q2FY22 estimate for CAMS: Q2FY22 overall industry AAUM came in at Rs36.2trn; we estimate CAMS’ share in it at 69.9% (accounting for Franklin Templeton AUM). Based on improvement in equity mix, we expect CAMS’ equity mix at 37% in Q2FY22 vs 35% in Q1FY22. We expect overall yields at 2.76bps. Asset-based revenues are estimated at Rs1.76bn and non-asset based revenues at Rs0.3bn. Non-MF revenues are likely at Rs195mn, which leads to total operating revenues of Rs2.2bn, up 10% QoQ. We expect EBITDA margins to improve to 47.1% vs 46.2% in Q1FY22. Q2FY22 PAT is estimated at Rs722mn.

* NFOs have been healthy in FY22-TD, especially in Q2FY22: On ex-ETF basis, flows garnered by AMCs have been robust in FY22-TD. The robust growth was driven by ICICI Prudential Flexi cap fund (Rs98bn) in Jul’21 and SBI Balanced Advantage fund (Rs145bn) in Aug’21. In FY22-TD, total amount raised though NFOs has been Rs561bn vs Rs293bn raised in FY21. In FY22-TD, highest fund mobilisation has been done in balanced advantage funds (Rs146bn), flexi-cap funds (Rs133bn), sectoral / thematic funds (Rs100bn), and focused funds (Rs32bn).

* Flows snapshot: Total MF flows in FY22-TD stand at Rs1.7trn (Rs1trn in Q2FY22) of which flows through NFO are at Rs567bn (Rs492bn in Q2FY22). SIP flows in FY22-TD are at Rs561bn (Rs296bn in Q2FY22). Equity flows have remained positive in FY22-TD at Rs611bn (Rs414bn in Q2FY22).

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