Buy Aditya Birla Sun Life AMC Ltd for the Target Rs. 1,100 by Motilal Oswal Financial Services Ltd
Beat on core PAT, fueled by operating efficiency
* Aditya Birla Sun Life AMC’s (ABSLAMC) operating revenue grew 9% YoY to ~INR4.6b (in-line). The yields on management fees for the quarter stood at 43.4bp vs. 44.3bp in 2QFY25. For 1HFY26, revenue rose 12% YoY to INR9.1b.
* Total opex grew 3% YoY to INR1.8b (in line), reflecting a cost-to-income ratio of 38.7% vs. 41% in 2QFY25 (our est. at 40.3%). EBITDA grew 13% YoY to INR2.8b, reflecting an EBITDA margin of 61.3% (vs. 59% in 2QFY25 and MOFSLe of 59.7%).
* Lower-than-estimated other income, offset by a lower tax rate and operational efficiency, resulted in a PAT of INR2.4b, which was flat YoY (in line). For 1HFY26, PAT grew 8% YoY to INR4.8b. Other expenses were 10% below our estimate, and a lower tax rate of 23.5% (vs. our estimate of 25%) resulted in a 5% beat in core PAT at INR2.1b (+20% YoY).
* While the equity yields declined slightly due to telescopic pricing, the management expects the same to remain stable at 64-65bp. In terms of costs, the existing run rate for other expenses is likely to continue, while employee expenses should grow 12% YoY for the full year.
* We raise our EPS estimates by 3%, 5%, and 5% for FY26E, FY27E, and FY28E, respectively, factoring in improved fund performance, higher yields, and better-than-expected operating efficiency. Reiterate BUY with a TP of INR1,100, based on 32x Sep’27E core EPS.
Strong growth in non-equity AUM
* MF QAAUM grew 11% YoY/5% QoQ to INR4.3t. This was led by debt/ETF/ hybrid funds, which rose 29%/17%/33% YoY, while equity funds were flat YoY. The market share stood at 6.14% as of Sep’25, largely stable.
* Overall average AUM grew 15% YoY to INR4.6t in 2QFY26, with the asset mix comprising domestic equity at 42%, debt at 37%, liquid at 14%, and alternate & offshore assets at 8%.
* Total alternate AUM grew ~2x YoY to INR357b, led by a ~9x YoY rise in AIF & PMS AUM to INR303b, while offshore AUM declined 62% YoY to INR48b. Real estate AUM remained flat at INR6b.
* Passive AUM at INR361b has become 2x of 2QFY23, with ETF AUM at INR88b, FoF AUM at INR41b, and Index AUM at INR232b. ABSLAMC has a passive product suite of 53 products and has serviced 1.4m folios since Sep’22.
* SIP contribution declined 9% YoY to INR11b, with SIP accounts declining to 3.9m from 4.3m in Sep’24. Notably, 95% of total accounts are older than five years, and 90% are older than 10 years.
* The distribution mix remained largely stable with respect to overall AUM. The direct channel continued to dominate the mix with a 44% share, followed by mutual fund distributors, or MFDs (32%), national distributors (16%), and banks (8%). However, in equity AUM, MFDs contributed 53% to the distribution mix.
* Investor folios rose to 10.7m (+5% YoY), while the number of MFDs increased by ~5.3k in 1HFY26, reaching more than 92,000.
* Opex, as a percentage of QAAUM, stood at 16.8bp in 2QFY26 vs. 18.1bp in 2QFY25 (est. 17.5bp). Employee costs grew 6% YoY to INR951m (in-line), while other expenses declined 4% YoY to INR692m (10% lower than estimated).
* Other income declined 53% YoY/62% QoQ to INR452m (36% miss).
Key takeaways from the management commentary
* SIP AUM is at ~INR840b, which is ~44% of the overall equity AUM of the company. The loss in market share was largely due to the maturity of a few STPs, but retail momentum in SIP continues.
* The company has received SEBI approval for its SIF product and will first launch an Arbitrage scheme. The team is being onboarded for the Long-Short scheme, after which it will also be launched.
* ABSL AMC has been selected by EPFO to manage its debt portfolio for the next 5 years and is awaiting a formal confirmation letter for the same.
Valuation and view
* ABSLAMC’s mutual fund business is witnessing strong and broad-based growth, supported by improved fund performance across equity and fixed income segments, a steady rise in SIP traction, and continued expansion of its distribution network. Strategic initiatives to strengthen market share, along with enhanced product offerings and operational efficiencies, are driving business momentum.
* The company’s focus on innovation, including the launch of a separate SIF platform and increasing focus on the growth of the non-MF segment via innovative product launches, positions it well for sustainable growth.
* We raise our EPS estimates by 3%, 5%, and 5% for FY26E, FY27E, and FY28E, respectively, factoring in improved fund performance, higher yields, and betterthan-expected operating efficiency. Reiterate BUY with a TP of INR1,100, based on 32x Sep’27E core EPS.
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