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Equity market momentum remains key driver

Revenue Yield - Revenue yield on a comparable basis evolved negatively: Due to oneoffs, the 4Q revenue yield was subdued for HDFC AMC and hence 3Q yield is more comparable, where the revenue yield was 48bps. Hence, on a comparable basis, yield has declined in 1Q due to the launch of a largish NFO and the usual telescopic pricing.

Operating Expenses – Operating expenses growth to remain elevated: The employee cost for 1Q has increased by 20% YoY, driven by increase in headcount, annual increments and additional spends on building alternatives business. The other operating cost for 1Q has increased by 28% YoY, driven by an increase in general business, new NFO during the quarter, KYC related expenses and outsourcing expenses. The management has guided that the total opex would grow by 12-15% YoY in FY25.

We maintain ‘ADD’ rating on HDFCAMC with a revised price target of Rs 4750: We value HDFCAMC at 43x FY26 P/E, with the implied P/B being 12.2x.

Result Highlights (See “Our View” above for elaboration and insight)

* Revenue: Revenue from operations at Rs 7,752mn was up 11.5%/34.9% QoQ/YoY, leading/lagging the growth in QAAUM of 9.6%/38.3% QoQ/YoY

* Share of Equity in AUM: Share of Equity in AUM (including Hybrid funds) at 64.3% was up 130 bps QoQ and 1010 bps YoY

* Share of B-30 in AUM: Share of B-30 in AUM at 19.4% was up 30 bps QoQ and 220 bps YoY

* Channel mix: Share of Banks, MFDs, NDs and Direct channel was 13.4%, 36.0%, 25% and 25.6%, respectively in Equity QAAUM

* Operating profit margin: Operating profit margin for the quarter, at 76.7%, was down -80 bps QoQ but up 215 bps YoY

COMPREHENSIVE CON-CALL TAKEAWAYS

Yield aspects

* Due to one-offs in 4QFY24, the revenue yield in 1QFY25 is to be compared with the 3QFY24, where it was at 48bps.

* The revenue yield has declined from 3QFY24 level due to the launch of a largish NFO and the usual factor of telescopic pricing.

* The negative impact of the NFO was around 0.5bps on equity segment yield for 1QFY25.

* Segmental Average book yield for the quarter

* Equity – Just short of 59 bps

* Debt – 28 bps

* Liquid – 12-13 bps

* Flow yield

* The yield on equity assets is around late 40 bps to sometimes upward of 50bps.

Operating expenses

* Total expenses

* Total expenses for 1QFY25 have gone up by 23.5% YoY and 15.5% QoQ.

* Employee Expense

* The employee cost for 1QFY25 has increased by 20% YoY and 16.6% QoQ.

* The key reasons for the YoY increase in employee cost are increase in headcount, annual increments, additional spends on building alternatives business and valuations of leave encashment & gratuity.

* ESOP cost

* The ESOP cost was Rs. 63mn in 1QFY25 vs Rs 110mn in 1QFY24.

* Guidance

* The employee cost is to grow by around 12-15% YoY.

* Other Opex

* The other operating cost for 1QFY25 has increased by 28% YoY and 13.8% QoQ.

* The key reason for the increase in other opex was an increase in general business, new NFO during the quarter, KYC related expenses and outsourcing expenses.

* The company also had a large employee engagement event in the quarter which typically use to happen in the second or third quarter.

* Branch expansion

* The company added 24 branches in January 2024 and don’t have major plans to further expand branch network currently.

* Most of the branches are in B30 cities.

* The new branches are generally small in size with a capacity of 2-3 people

* The breakeven for these new branches is also quick.

* Guidance

* The other opex is to grow by around 12-15% YoY.

AUM Segment Aspects

* The contribution of Equity AUM in total AUM is now around 64% as against 54% YoY

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