Accumulate Nippon Life India Asset Management Ltd for Target Rs 1,165 by Elara Capital
Steady quarter, yield shrinks
Nippon Life India AMC (NAM IN) reported Q2FY27 revenue of INR 7,958mn, up 3.8% QoQ but 1.8% below our estimate, as MF QAAUM rose 4.7% QoQ to INR 7,871bn (2.2% below our estimate) and revenue yield slipped to 40.4bps from 40.8bps despite the rise in share of equity AUM. Equity QAAUM rose ~7% QoQ to INR 3,754bn (47.7% of MF QAAUM from 46.7%), but equity yield fell ~2bps to ~52bps due to telescopic pricing structure. Opex was flat QoQ at INR 2,583mn, 4.6% below our estimate, so operating profit rose 5.8% QoQ to a record INR 5,375mn, in line with our estimate, with margin up 130bps to 67.5%. Reported PAT fell 35.6% QoQ to INR 3,244mn on an exceptional charge of INR 968mn for the SEBI settlement on the YES Bank AT1 bond matter and other income normalizing to INR 231mn from INR 1,702mn. Adjusted PAT of INR 4,211mn was 2.7% below our estimate, while NOPLAT grew 7.7% QoQ to INR 4,043mn, 2.2% ahead. We retain Accumulate with a revised TP of INR 1,165 (from INR 1,200).
Share gains pause; equity growth flow-led:
NAM’s 4.7% QAAUM growth matched the industry’s 4.9%; so, MF share was flat at 9.02% after three quarters of gains. Equity share edged up 2bps to 7.40%. With the Nifty down 5% and the Midcap index down 4%, Small Cap QAAUM still rose 10.5% QoQ to INR 808bn, Mid Cap 10.1% to INR 511bn, Multi Cap 5.5% to INR 556bn and Multi Asset Allocation 15.8% to INR 175bn, against 3.9% for Large Cap and a flat ELSS. Equity net-sales share held near 10% and SIP share at 9.84%, both above the equity AUM share, but unique investors (24.3mn) and folios (40.6mn) were flat QoQ.
Yield compression structural:
With Mid Cap crossing INR 500bn, QAAUM in schemes above INR 500bn rose to INR 2,412bn, or 64% of equity QAAUM (Q1FY27: 51%), leading to pressure on overall yields. Management expects gradual compression to continue, while flows concentrate in these schemes, which caps the revenue upside from share gains.
Passives and SIP anchor; costs under control:
ETF QAAUM rose 36% YoY to INR 2,486bn with 21.12% share (+135bps YoY). Gold/silver ETF AUM grew 6.6% QoQ to INR 882bn despite the curb on commodity FoF inflows. The monthly systematic book rose 2% YoY to INR 37bn. FY27 opex growth guidance of 18-20% is retained, with incremental spend in the AIF subsidiary. The INR 968mn settlement was fully paid with no prior provision. SEBI’s final order is awaited.
Retain Accumulate with a revised TP of INR 1,165:
We trim FY27E/28E/29E revenue by 1.9%/2.2%/0.8% and EBITDA by 2.9%/3.1%/1.0% given lower equity yield and a softer AUM base, and now model MF AAUM/revenue/NOPLAT CAGRs of 19%/17%/17% in FY26-29E (earlier: 19%/17%/18%). We cut our DCF-TP to INR 1,165 (from INR 1,200), implying ~36x Sep-28E NOPLAT and 19% upside. Flow and SIP share above AUM share support a premium multiple, but yield telescoping and the pause in share gains limit near-term re-rating. Key risks are prolonged equity correction, scheme underperformance and faster yield compression.
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SEBI Registration number is INH000000933
