Buy Aditya Birla Sun Life AMC Ltd for the Target Rs 1,160 by Motilal Oswal Financial Services Ltd
Core performance in line; other income drives a PAT beat
* Aditya Birla Sun Life AMC (ABSLAMC)’s operating revenue grew 5% YoY/ 4% QoQ to ~INR4.8b (in-line). For 1HFY27, revenue grew 4% YoY. The yield for the quarter stood at 43.8bp vs. 43.4bp in 2QFY26 and 43.3bp in 1QFY27.
* Total opex grew 21% YoY to INR2.2b (in-line) reflecting a cost-to-income ratio of 44.6% vs. 38.7% in 2QFY26 (vs. our est. of 44.5%). EBITDA dipped 5% YoY to INR2.7b (in line), reflecting an EBITDA margin of 55.4% (vs. 61.3% in 2QFY26 and MOFSLe of 55.5%). EBITDA stood at INR5.3b in 1HFY27.
* The beat on other income resulted in a 15% beat on PAT, which stood at INR2.2b, declining 8% YoY and 29% QoQ. 1HFY27 PAT stood at INR5.3b. Core PAT for 2Q came in at INR1.9b (-8% YoY; in line).
* Employee expenses are likely to remain around 2QFY27 levels going forward. The newly launched ESOP scheme is expected to have an annual impact of INR140–150m, while earlier schemes could entail an annual impact of INR550–600m over the next two years.
* We have broadly kept our estimates intact considering the in-line operating performance in 2QFY27. We reiterate our BUY rating on the stock with a TP of INR1,160, based on a valuation of 38x FY28E core P/E.
Key takeaways from the management commentary
* Retention ratio has increased to ~25–30%, from just 4–5% driven by better performance and the redirection of investors to other schemes.
* EPFO mandates are cost-neutral, but can strengthen credibility and create opportunities for privately managed assets and overseas mandates.
* A dedicated team has been hired to build the SIF franchise, with a focus on driving product awareness and investor allocations.
Valuation and view
* Improving flagship fund performance, stronger distribution traction, and an improving retention rate provide confidence in sustained AUM growth while disciplined cost management should support operating leverage. Continued improvement in flows and market share recovery remain key earnings drivers.
* The expanding alternatives, PMS, passive, SIF and GIFT City businesses provide meaningful long-term optionality beyond the core mutual fund franchise. As these businesses scale, they are expected to diversify revenue streams and support profitability, although execution and fundraising momentum remain the key monitorables.
* We have broadly kept our estimates intact considering the in-line operating performance in 2QFY27. We reiterate our BUY rating on the stock with a TP of INR1,160, based on a valuation of 38x FY28E core P/E.
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