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Yield stagnant despite rise in share of equity

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

? Revenue: Revenue from operations at Rs 3,975mn was up 12.2% QoQ and 19.9% YoY, matching/ lagging 12% QoQ and 23% YoY growth in QAAUM

? Share of Equity in AUM: Share of Equity in AUM (including Hybrid funds) at 47% was up 230bps QoQ and 337 bps YoY (calculated on rounded off figures)

? Share of B-30 in AUM: Share of B-30 in AUM at 19.9% was up 60bps/170bps QoQ/YoY

? Channel mix: In overall AUM, the share of direct channel was 53%. Share of MFDs, Banks and NDs within distributed assets was 58%, 22% and 20%, respectively

? Operating profit margin: Operating profit margin for the quarter, at 60.7%, was up 357 bps QoQ and 237 bps YoY

Our view – Slab rules reduce benefit from gain in net equity flows

Standalone yield has declined on sequential basis despite improvement in asset class mix in AUM: The decline in yield is on account of rapid growth in equity AUM, which was up 18% QoQ, which has caused several funds to move into the next TER slab (with lower limit). There has been no change in distribution commission payouts on sequential basis. The competitive pressure on yield has largely reduced and the company is earning more on new equity NFOs than the on-book equity yield. However, there will a compression of overall yield amounting to 2-3 bps every year for the next 3-4 years.

Market share in net equity inflows reached a healthy double-digit level for the quarter: Annualised net sales for 2Q has been 3x of entire last financial year. The market share in gross flows in 2Q has amounted to 7.5% whereas the market share in net flows in 2Q has been 11%.

We maintain a less-than-bullish ‘ADD’ rating on NAM with a revised price target of Rs 435: We value NAM at 26x FY25 P/E, at which the stock would trade at a P/B of 6.9x.

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