Buy HDFC AMC Ltd for the Target Rs.6,400 by Motilal Oswal Financial Services Ltd
Strong growth in other income leads to beat on PAT estimate
* HDFC AMC’s operating revenue grew 25% YoY/7% QoQ to INR9.7b (in-line). Yields for the quarter came in at 46.7bp vs 46.2bp in 1QFY25 and 46.6bp in 4QFY25.
* Total opex rose 8% YoY/14% QoQ to INR 2b (in-line), driven by 8% YoY growth in employee costs (in-line) and 7% YoY growth in other expenses (inline).
* EBITDA for the quarter was at INR7.7b, up 30% YoY. EBITDA margins were at 80% vs 77% in 1QFY25 and 81% in 4QFY25. Other income came in at INR2.3b, 33% above our estimates due to MTM gains (up 34% YoY and 88% QoQ).
* Higher other income led to a 9.5% beat on PAT estimates to INR7.5b, up 24% YoY/17% QoQ. PAT margins came in at 77% vs 78% in 1QFY25 and 71% in 4QFY25.
* HDFC AMC offers a well-diversified product suite across all SEBI-permitted asset classes. It aims to strengthen its position across existing offerings and has applied to SEBI for the launch of specialized investment funds (SIFs), in line with its investment and risk management capabilities.
* We have raised our earnings estimates by 3% each for FY26/FY27, reflecting strong 1QFY26 performance and stable AUM growth. We reiterate our BUY rating on the stock with a TP of INR6,400 (premised on 42x Mar’27E EPS).
Equity mix largely steady within overall AUM
* QAAUM stood at INR8.3t, up 23% YoY/7% QoQ, driven by 25% /19% /17% /21% /64% /41% YoY growth in equity /hybrid /debt /liquid /ETFs /index funds.
* The equity mix in the overall AUM remained largely stable at ~62% on a YoY basis. Debt/Liquid/Index schemes contributed 14%/16%/5% to the mix in 1QFY26 (15%/16/4% in 1QFY25).
* Closing AUM for 1QFY26 stood at INR8.6t, registering growth of 21% YoY and 14% QoQ.
* The company’s overall market share in the total AUM was steady at 11.5% YoY, while excluding ETFs, the market share declined slightly to 12.8% from 13% in Jun’24. Actively managed equity/debt/ liquid AUM market share stood at 12.8%/ 13.3%/12.6% as of Jun’25.
* Individual monthly AAUM grew 19% YoY to INR6t, with a market share of 13.1%, reinforcing HDFC AMC’s position as one of the most preferred choices among individual investors.
* As of Jun’25, SIP AUM was up 25% YoY/14% QoQ at INR2t, backed by growth in the number of transactions to 12m. The average ticket size declined to INR3.3k from INR3.7k in 1QFY25.
* Based on overall AUM, the direct channel accounted for the largest share at 42%, followed by IFAs and national distributors at 26% and 22%, respectively. Within equity AUM, IFAs led the distribution with a 33% share, while the direct and national distributor channels contributed 33% and 26%, respectively.
* HDFC AMC’s unique investors stood at 13.7m (vs. 10.7m at the end of 1QFY25), reflecting 25% penetration in the mutual fund industry. Live accounts grew 31% YoY to 24.3m.
* Employee costs grew 8% YoY to INR1.1b (in line), while other expenses grew 7% YoY to INR844m (in-line). This resulted in opex/AUM of 9.4bp vs 10.8bp in 1QFY25 and 8.8bp in 4QFY25.
* Other operating expenses increased 15% sequentially, primarily due to the timing difference in recording CSR-related expenses.
* Other income rose 34% YoY/88% QoQ, driven by MTM gains on both debt and equity investments.
* Total investments as of Jun’25 stood at INR73.9b, with 89.2%/5.4%/4.9%/0.5% being segregated into MFs/Other Equity, AIFs/tax-free bonds and debentures/subsidiary.
Key takeaways from the management commentary
* The company remains constructive on the debt segment outlook, supported by RBI’s measures, such as interest rate reductions, which are expected to benefit fixed-income investments. It has also recently launched an awareness campaign focused on the debt segment in association with AMFI.
* HDFC AMC’s share in both overall AUM and equity AUM has witnessed a declining trend, driven by faster growth in other distribution channels.
* The company has applied to SEBI for the launch of SIFs, aligning with its investment and risk management strengths.
Valuation and view
* HDFC AMC remains a strong player in the mutual fund industry, backed by robust financial performance, steady AUM growth, cost efficiency, and a strong retail presence. Despite short-term market volatilities, the company’s long-term fundamentals remain solid.
* With an improved market position, a well-diversified product portfolio, and digital expansion efforts, HDFC AMC is well-positioned to sustain growth and deliver value to its stakeholders.
* We have raised our earnings estimates by 3% each for FY26/FY27, reflecting strong 1QFY26 performance and stable AUM growth. We reiterate our BUY rating on the stock with a TP of INR6,400 (premised on 42x Mar’27E EPS).
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