Buy HDFC AMC Ltd For Target Rs.5,200 By Motilal Oswal Financial Services Ltd
Improvement in yield, cost control boost margins
* 3QFY25 operating revenue grew 39% YoY/5% QoQ to INR9.3b (in line with est.). The sequential growth was driven by AUM growth and a 0.7bp QoQ improvement in yield to 47.5bp (1.1bp YoY decline). For 9MFY25, operating revenue grew 37% YoY to INR26b.
* Total opex grew 7% YoY to INR1.7b (10% lower than est.), driven by 6% YoY growth in employee costs (2% lower than est.) and 8% YoY growth in other expenses (19% lower than est.).
* Better-than-expected operational efficiency resulted in 49% YoY growth in EBIDTA to INR7.6b (6% beat). EBIDTA margin came in at 81.7% vs. 79.3% in 2QFY25 and 76.2% in 3QFY24.
* Operational efficiency resulted in 31% YoY/11% QoQ growth in PAT to INR6.4b (6% beat). For 9MFY25, PAT grew 30% YoY to INR18.2b.
* The management guides to improve its market share and become the leader in the existing product offerings rather than focusing on bringing more new products to the bouquet. Additionally, expenses are expected to grow in the range of 12-15% YoY.
* We have largely kept our estimates unchanged. We maintain our BUY rating on the stock with a TP of INR5,200 (premised on 42x Sep’26E Core EPS).
AUM growth remains stable; market share improves slightly
* QAAUM grew 43% YoY to INR7.9t, driven by 58%/42%/16%/31%/36%/71% YoY growth in equity/hybrid/debt/liquid/ETFs/index funds.
* Closing AUM for 3QFY25 was at INR7.8t, up 35% YoY, and the company’s market share improved to 11.6% (11.3% in 3QFY24). Excl. ETFs, HDFC AMC’s AUM market share improved to 12.9% from 12.7% in 3QFY24.
* Actively managed equity/debt/ liquid AUM market share stood at 12.7%/ 13.2%/14.2% at the end of 3QFY25.
* SIP AUM at the end of 3QFY25 was flat QoQ/up 38% YoY at INR1.8t, backed by growth in the number of transactions to 11m.
* Unique investors for HDFC AMC at 3QFY25 end were 11.6m (vs. 8.7m at 3QFY24 end), reflecting 24% penetration in the mutual fund industry
Operational efficiency leads to profitability improvement
* Employee costs grew 6% YoY to INR953m (in line with est.), while other expenses grew 8% YoY to 743m (19% lower than est.). This resulted in opex/ AUM at 8.7bp vs. 11.6bp in 3QFY24.
* Weak market trends resulted in a 46% sequential decline in other income to INR931b (-35% YoY). However, this was 9% higher than our expectations.
Key takeaways from the management commentary
*HDFC AMC has recently issued the largest thematic fund on an industry level (the manufacturing fund), for which it raised ~INR90b and received ~NR20b after the NFO issued. In terms of NFOs, it currently has the best-inclass product bouquet consisting of both active and passive funds.
* Regarding SIP and investor account growth ahead, the management is optimistic as it still believes that India is highly underpenetrated and there are numerous growth opportunities.
* New Asset Class regulations: The company is waiting for the final set of regulations to be issued and is positive on the same. This will open up a new avenue with higher levels of flexibility and a higher risk-reward profile for a set of investors who are looking for the same.
Valuation and view
* The increasing share of equity in the overall AUM, driven by an anticipated higher CAGR of 30% in equity AUM vs. overall AUM CAGR of 24%, will help to mitigate the potential decline in yields. We expect scale benefits from new businesses (Alternates & Passives) to translate into higher profitability.
* We have largely kept our estimates unchanged. We maintain our BUY rating on the stock with a TP of INR5,200 (premised on 42x Sep’26E Core EPS).
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