Buy HDFC AMC Ltd for the Target 3,200 by Emkay Global Financial Services Ltd
HDFCAMC’s 1QFY27 performance was sturdy, with MF QAAUM at Rs9.35trn increasing ~1% qoq and market share largely stable at 11.2%. Yields witnessed a slight uptick to 47.2bps on sequential basis, driving up revenue to ~Rs11bn (+4.6% qoq), above our estimate of Rs10.6bn. EBITDA margin at 77.3% dipped by 250bps sequentially, owing to higher employee costs and other expenses. PAT at Rs8.37bn grew 34% sequentially, driven by strong other income and came in higher than our estimate of Rs7.6bn. The regulatory impact on account of changes in the TER regulation was minimal, given the restructuring of commissions and cost discipline. To bake in the 1Q developments, we tweak our estimates (Exhibit 2) – this results in a ~1% increase in revenue; we marginally cut our EBITDA margin estimates by ~40bps leading to a ~1-2% increase in PAT over FY27-29E. We maintain BUY on the stock and Jun-27E TP of Rs3,200, implying FY28E PER of 37x
Largely stable quarter; ‘other income’ lifts PAT
MF QAAUM at Rs9.35trn increased ~1% qoq, while revenue yields increased to 47.2bps resulting in a ~5% qoq increase in revenue to Rs11bn as against our estimate of Rs10.6bn. The uptick in yields was driven by the shift from TER to BER plus statutory levies and accounting changes. Employee costs increased 14% qoq, given the higher ESOP expenses during the quarter and annual hikes. Other expenses rose 31% sequentially, on higher CSR expenses in the quarter. EBITDA margin at 77.3% dipped by 250bps sequentially, leading to largely flat EBITDA on sequential basis. Other income at Rs2.6bn saw material qoq growth, driven by MTM gains. This, coupled with lower tax rate, resulted in PAT at Rs8.37bn (+34% qoq), higher than our estimate of Rs7.6bn.
Strong growth opportunities drive continued investments in the business
SIP contributions appear to have become a regular practice for investors, transforming India from a nation of savers to one of investors. With strong growth opportunity in the asset management industry being led by under-penetration, increasing financialization, and enhanced awareness, the management plans to invest for the future while providing a bouquet of products for each class of investors. HDFCAMC targets launching some funds in the Alternates segment, while the Board has approved the launch of a Long-Short SIF fund. The company plans to invest in new platforms and teams, along with hiring across international business, PMS, AIF, institutional sales, digital, AI, and marketing
We maintain BUY and Jun-27E TP of Rs3,200
To reflect the 1Q developments, we tweak our estimates; this results in ~1% increase in revenue. We cut EBITDA margin by ~40bps over FY27-29E, resulting in a ~1-2% increase in PAT over the same period. Given its strong brand equity, distribution, and fund performance, HDFCAMC is well-positioned to drive profitable AUM growth. We maintain BUY on the stock and Jun-27E TP of Rs3,200, implying 37x FY28E PER.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
