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Strong quarter; market share gains persist

HDFCAMC reported strong quarter with an operating PBT of INR 4.7bn (+13% QoQ, +20% YoY) driven by a) +8% QoQ increase in QAAUM led by equity segment and b) expansion in top-line yields to 49bps (+2bps QoQ); despite slightly elevated opex (+9% QoQ, +13% YoY). MF QUAAM increased by +8% QoQ/+22% YoY driven by strong inflows in HDFCAMC’s equity schemes as well as run-up in equity markets – Equity QAAUM was up +15% QoQ. Equity AUM market share improved to 12.6% (+20bps QoQ) on the back of improved scheme performance and increased distribution efforts. Top-line yields improved to 49bps (+2bps QoQ) driven by higher share of equity AUM in overall AUM. HDFCAMC’s SIP flows increased to INR 22.4bn in Sep’23 (vs INR 18.9bn in Jun’23) and the SIP flow market share increased to 13.6% (+80bps QoQ). HDFC AMC stock has seen a sharp bounce back since the lows seen post SEBI discussion paper on proposed TER changes given that SEBI has indicated that a revised discussion paper is in works. While there is a broad expectation that the new discussion paper will be much more positive for AMCs, we remain watchful of the key changes. HDFC AMC is our top pick in the space and the stock can see a meaningful rerating driven by robust AUM growth and potential benefits from HDFC Bank parentage. Maintain BUY with a TP of INR 3,150. 

* Equity market share gains continue: MF QUAAM increased by +8% QoQ/+22% YoY driven by strong inflows in HDFCAMC’s equity schemes as well as run-up in equity markets – Equity QAAUM was up +15% QoQ. Equity AUM market share improved to 12.6% (+20bps QoQ) on the back of improved scheme performance and increased distribution efforts. HDFCAMC’s SIP flows increased to INR 22.4bn in Sep’23 (vs INR 18.9bn in Jun’23) and the SIP flow market share increased to 13.6% (+80bps QoQ). Management remains confident of maintaining the market share gain trajectory aided by its superior scheme performance and increased distribution impetus led by HDFC Bank channel – HDFC AMC has started a dedicated vertical to focus on HDFC Bank channel engagement.

? Strong operating performance: Top-line yields improved to 49bps (+2bps QoQ) driven by higher share of equity AUM in overall AUM, despite incremental equity flows are coming in at lower yields. Opex was a tad higher at INR 1.76bn (+9% QoQ, +13% YoY) driven by slightly higher employee opex (+11% QoQ) on account of ESOP charge and hiring of front line staff. Other opex was also on a higher side led by general business related expenses, NFO expenses, CSR expenses and technology spends. However, operating PBT was strong at INR 4.7bn (+13% QoQ, +20% YoY) resulting in core PBT margins of 36bps (+2bps QoQ). Other income moderated back to normalised levels of INR 1.2bn (-23% QoQ).

* Valuation: HDFC AMC stock has seen a sharp bounce back since the lows seen post SEBI discussion paper on proposed TER changes given that SEBI has indicated that a revised discussion paper is in works. While there is a broad expectation that the new discussion paper will be much more positive for AMCs, we remain watchful of the key changes. HDFC AMC is our top pick in the space and the stock can see a meaningful rerating driven by robust AUM growth and potential benefits from HDFC Bank parentage. Maintain BUY with a TP of INR 3,150. 

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SEBI Registration number is INH000000354