Buy ICICI Prudential AMC Ltd for the Target Rs 3,700 by Motilal Oswal Financial Services Ltd
Strong revenue growth drives an all-round beat
* ICICI Prudential AMC’s (IPRU) operating revenue grew 18% YoY/7% QoQ to INR16.7b (7% beat) in 2QFY27. Yields came in at 57.9bp vs. 56bp in 2QFY26 and 56.1bp in 1QFY27. Operating net revenue mix stood at 89.9% for mutual funds, 8.7% for alternates and 1.4% for advisory.
* Total opex at INR4.6b was up 23% YoY/6% QoQ. Employee costs at INR2b rose 23% YoY/4% QoQ, while other expenses came in at INR1.1b, up 14% YoY/9% QoQ. EBIDTA came in at INR12.2b (9% beat), up 16% YoY and 7% QoQ. EBIDTA margin was at 72.6% vs. 73.8% in 2QFY26 and 72.4% in 1QFY27.
* PAT stood at INR8.9b (13% beat mainly due to higher revenue growth), up 6% YoY but down 8% QoQ. PAT margins came in at 53.1% vs. 58.8% in 2QFY26 and 61.7% in 1QFY27.
* The company has launched NFOs across a balanced hybrid fund, multi-asset active FoF, dynamic asset allocation passive FoF, BSE Insurance ETF, and lifecycle funds with 5, 10 and 15-year maturities. On the SIF front, four funds have been launched, with a fifth planned for 2QFY27. Economics for SIFs are expected to remain broadly in line with MF business.
* We have raised our earnings estimates for FY27/FY28 by 4%/2%, factoring in higher other income and improved yields in the MF business, partially offset by a marginal increase in operating expenses. We project a CAGR of 16%/15%/15% in AUM/revenue/PAT over FY26-28E and maintain a BUY rating with a TP of INR3,700, based on 45x FY28E core EPS.
Net flows remain healthy
* Total MF QAAUM at INR11.6t grew 14% YoY and 4% QoQ. Equity/Hybrid/ETFs/Index/Liquid segments grew 14%/18%/41%/14%/12% YoY, but debt declined by 12% YoY in 2QFY27.
* The share of Equity/ETF/Debt/Liquid in the total QAUM stood at ~60%/ 13%/11%/11% in 2QFY27 vs. 59%/11%/15%/11% in 2QFY26.
* Alternates QAAUM grew 2% QoQ to INR810b, driven by PMS (INR308b; +6% QoQ) and AIF (INR243b; +7% QoQ), partly offset by a 6% QoQ decline in assets under advisory (INR259b). Yields improved sequentially due to drawdowns in certain funds, particularly real estate; historical yields have generally ranged around 90-100bp, with AIF/PMS yields at 97.2bp (vs. 95.2bp in 1QFY27) and Advisory yields at 33.7bp (vs. 29.9bp).
* Monthly systematic transactions (SIPs and STPs) moderated to INR46.7b in Sep’26 from INR48.7b in Jun’26 amid market volatility (in line with industry trends). Average SIP contribution remained broadly stable QoQ, while flows shifted toward small- and mid-cap schemes.
* Quarterly average SIF AUM increased to INR49.5b in 2QFY27 from INR26.8b in 1QFY27. Four SIF funds have been launched, with a fifth planned for 2QFY27. SIF margins and operating economics are expected to be broadly similar to the MF business.
* On the NFO front, the company launched products across multiple categories, including a balanced hybrid fund, multi-asset active FoF, dynamic asset allocation passive FoF, BSE Insurance ETF, and lifecycle funds with 5-, 10- and 15-year maturities.
* On the distribution front, MFDs remained dominant in the equity AUM mix at 36.1%, followed by direct at 29.9%, national distributors at 15.9%, and banks at ~18.1% in 2QFY27 vs. 36.2%/29.5%/15.9%/18.4% in 1QFY27, respectively.
* Unique customer base grew 3% QoQ to 17.8m as of Sep’26.
* The total investment book stood at INR51.9b as of Sep’26, with 77.8% in MFs (33.4% equity, 66.1% liquid & debt, balance others), 19.4% in AIF/other equity/REITs, and the remainder in corporate bonds (vs. 72.9% in MFs and 23.5% in AIF/other equity/REITs as of Jun’26).
* Total opex at INR4.6b was up 23% YoY/6% QoQ. Employee costs at INR2b rose 23% YoY/4% QoQ, while other expenses came in at INR1.1b, up 14% YoY/9% QoQ. As bp of AUM, opex was at 15.9bp vs. 14.7bp in 2QFY26 and 15.5bp in 1QFY27.
* FY27 ESOP expense guidance is reiterated at INR640-680m, with charges recognized in the P&L on a pro-rata basis.
* Fees and commission expenses increased 30% YoY, reflecting higher distribution payouts in the fast-growing AIF and PMS businesses.
* Other income came in at INR169m vs. our est. of negative INR350m.
* PAT increased 6.1% YoY to INR8.9b but declined 7.8% QoQ, primarily due to lower other income from mark-to-market movements.
Valuation and view
* IPRU AMC remains well-positioned to deliver healthy growth, supported by strong net flows, product diversification and expansion in alternatives, including SIFs.
* We have raised our earnings estimates for FY27/FY28 by 4%/2%, factoring in higher other income and improved yields in the MF business, partially offset by a marginal increase in operating expenses. We project AUM/revenue/PAT CAGRs of 16%/15%/15% over FY26-FY28E and maintain a BUY rating with a TP of INR 3,700, based on 45x FY28E core EPS.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
