Nippon Life India Asset Management Ltd : Cost optimization to drive earnings TP of Rs. 335 - HDFC Securities
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Add Nippon Life India Asset Management Ltd For Target Rs.335
Cost optimization to drive earnings
NAM has been able to stabilise its equity market share over the past two quarters to 7.0%. We expect it to focus on improving performance and continue to recoup its lost market share. Additionally, we expect the company to benefit from increased credibility to raise HNI/institutional capital. Driven by cost optimization, we increase our estimates and now expect the company to deliver an FY21-23E revenue/NOPLAT CAGR of 12.6/16.9%. We upgrade the stock one notch to ADD with a target price of Rs 335, valuing the stock at 36x Sep-22E NOPLAT + cash and investments. The stock is currently trading at FY22E/23E EV/NOPLAT of 37.1/30.1 and P/E of 32.6/26.9x.
* 3QFY21 highlights: Revenue at Rs 2.69bn (-11.4%/+3.8% YoY/QoQ) was 4.1% below estimates. Equity QAAUM market share was stable at 7.0% (- 6bps QoQ) whereas debt QAAUM market share dropped 79bps QoQ to 6.6%. Over the past nine months, equity/debt market shares have dropped 122/101 bps, which remains a concern. Core operating profit at Rs 1.38bn, 1.5/8.5% YoY/QoQ was 5.1% below estimates, mainly as a result of lower revenue, partially offset by lower staff costs. Management stated that cost savings would continue as ESOP costs would not grow. Recovery in equity markets resulted in treasury income of Rs 1.30bn (+126.7/104.7% YoY/QoQ) and drove APAT to Rs 2.12bn (+42.0/45.9% YoY/QoQ).
* NAM’s equity performance has lagged that of peers. Management is focused on improving the same through diversifying and having improved risk management. It is looking to raise overseas assets using Nippon Life’s network; this could be meaningful over the medium term.
* Outlook: We have finetuned our estimates to build in higher other income. We expect a gradual recovery in assets and earnings. For FY21E, we expect revenue/EBIT to decline by 12.0/8.3% YoY respectively.
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