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Core performance in-line, strong other income

HDFC Asset Management Company (HDFCAMC IN) reported a strong set of results in Q3FY26, with PAT rising ~20% YoY to INR 7,694mn, driven by robust growth in assets under management (AUM) and healthy revenue expansion. Operating revenue grew ~15% YoY to INR 10,751mn, supported by a quarterly average AUM (QAAUM) of INR 9,249bn (up ~18% YoY), with equity-oriented AUM crossing INR 5,661bn and comprising 61% of the mix, reflecting sustained investor preference for equities amid market volatility. Revenue came in at INR 10,751mn, up 15% YoY/ 4.6% QoQ and in line with our expectation (Elara estimates: INR 10,778mn), with revenue yield reported at 45.8bps (45.9 bps in Q2FY26). Operating EBITDA stood at INR 8,764mn, aided by controlled expenses (down QoQ due to lower CSR and marketing spends), while other income of INR 1,589mn further added to the profitability. Core PAT came in at INR 6,485mn (up ~14%) with core PAT yield at 27.8bps (26.9bps in Q2FY26), also in line with our expectation (Elara estimates: INR 6,339mn). We upgrade to BUY.  

Systematic investment plans (SIPs) continued to serve as a pivotal structural driver: HDFCAMC witnessed systematic transactions (encompassing SIPs and STPs) rise ~24% YoY to INR 47.3bn in December, supported by strong additions in new accounts, folios, and investors. The company's SIP AUM reached INR 2,212bn as of December, reflecting a ~13% market share and positioning it favorably for sustained AUM growth and greater revenue predictability. This sticky SIP book should drive stronger inflows, thereby adding directly to the AUM and serving as a cushion against market volatility.

Strong uptick in non-MF segment: HDFCAMC continued to scale its Portfolio Management Services (PMS) and Alternative Investment Funds (AIF) segments as part of its diversification strategy, with PMS AUM crossing INR 50bn in Q3, supported by new account additions in both discretionary and non-discretionary segments and strategic EPFO/SPF mandates. In alternatives, the company achieved the first close of its structured credit fund, raising ~INR 13bn in commitments (anchored by IFC up to INR 2.2bn). Alternatives AUM stood at INR 84bn, reflecting steady progress in private markets, with the team actively developing a second fund. These higher-yielding segments contribute meaningfully to revenue diversification and support enhanced profitability over the long term.

Regulatory refinements may have limited impact: Recent regulatory changes may adversely affect larger schemes. However, smaller schemes stand to benefit from redefined AUM slabs that could allow higher TER, potentially offsetting the impact. Overall, the impact is expected to be fairly limited.

Upgrade to Buy; TP raised to INR 3,100: We upgrade HDFCAMC to BUY (from Accumulate), as valuations now appear reasonable given the stock has corrected ~9% since we initiated coverage while franchise value and business economics appear unchanged. We raise our TP to INR 3,100 (from INR 3,015), as we roll forward by a quarter. Our TP implies 40x Dec-27E core PAT (36x consolidated PAT). Our earlier estimates are broadly unchanged..

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