Accumulate UTI Asset Management Company Ltd for the Target Rs. 1,400 By Prabhudas Liladhar Capital Ltd
UTIAM saw a weak quarter as core income at Rs1.33bn missed PLe by 20% led by higher staff cost due to VRS related one-time impact of Rs250mn. VRS was implemented w.e.f. 1st Oct’25, to offer exit to eligible employees; 479 are eligible for VRS. Avg. payout would be between Rs6.0-6.5mn. Entire VRS cost will be booked in the P&L in Q3FY26. All eligible employees may not take VRS; we increase staff cost and overall opex by 15%/25% respectively. Due to a combination of higher employee cost for FY26 and lower AAuM growth for FY27/28E led by weak equity performance leading to lower market share, we trim core PAT for FY26/27/28E by 16.5%/3.7%/5.5%. Valuation is at 15x on Sep’27 core EPS suggesting a ~57% discount to NAM. We maintain multiple at 16x and TP of 1,400 but change rating to ‘ACCUMULATE’ from ‘BUY’
? Weak quarter as higher staff cost led to core PAT miss: QAAuM was in-line at Rs3,810bn (+5% QoQ); equity at Rs1332bn grew by 4.3% QoQ. Revenue grew by 2.8% QoQ and was largely in-line at Rs3.9bn; revenue yields were lower at 40.9bps (PLe 41.3bps). Opex grew by 15.6% QoQ and was higher at 2.6bn (PLe Rs2.3bn) due to higher staff cost. Employee cost was more at 1.6bn (PLe Rs1.3bn) due to VRS related provisions. Other opex was Rs985mn (PLe Rs947mn). Core income was a miss at 1.3bn (PLe Rs1.7bn) resulting in lower operating yields at 13.9bps (PLe 17.5bps). Core income fell by 15.3% QoQ. Other income was lower at 0.3bn (PLe Rs0.4bn) due to lower MTM gains. Tax rate reduced to 19.4% (PLe 23%). Hence, core PAT at Rs1.07bn was 16% below PLe. Core PAT yields were 11.2bps. PAT came in at Rs1.3bn.
? AMC yields were stable QoQ: Equity share slightly fell QoQ to 35.0% from 35.2% in Q1’26; debt share inched up 34bps to 11.0% while liquid share fell by 37bps to 8.9%. AMC yields were a bit lower QoQ to 32.7bps from 33.4bps. Company rationalized commissions during Q4FY25 due to which equity yields have been largely stable at ~75bps despite equity AAuM growth of 4% in H1FY26 over H2FY25. Other opex was more due to CSR expenses. Company maintains guidance of 7-8% growth in other opex. AUM for UTI International declined due to i) maturity of UTI Pheonix Fund ii) some redemption and MTM impact on UTI India Dynamic Equity Fund and iii) MTM in UTI Innovation Fund.
? VRS announced, would increase opex estimates: UTIAM approved VRS w.e.f. 1st Oct’25, one-time impact of which was Rs250mn. This was designed to offer an exit to eligible employees while realigning the workforce to support the firm's business priorities. Actual impact of VRS will depend on number of people opting for it which will be communicated in November. Out of 1,450 employees, 479 overall and 315 in sales are eligible for VRS. Avg. payout would be between Rs6.0-6.5mn. Management suggested that in case all employees take VRS, company will be requiring 70-75 replacements. Entire VRS cost will be booked in the P&L in Q3FY26. We increase staff cost for FY26E by ~25% but trim it for FY27E by 1.4%. Overall opex would increase by ~15% for FY26.
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