Buy Nippon Life India AMC Ltd for the Target Rs.940 by Motilal Oswal Financial Services Ltd
Higher other income drives PAT beat
* Nippon Life India AMC’s (NAM) operating revenue grew 20%/7% YoY/QoQ to INR6.1b (in line) in 1QFY26. Yields declined to 39.6bp from 40.7bp in 4QFY25 and 41.8bp in 1QFY25.
* Total opex grew 16% YoY to INR2.2b (in line) in 1QFY26. As a result, EBITDA rose 23% YoY to INR3.9b (in line) for the quarter. This led to an EBITDA margin expansion to 64% from 62.7% in 1QFY25.
* PAT stood at INR4b in 1QFY26 (8% beat due to higher other income), up 19%/33% YoY/QoQ. PAT margin stood at 65.2% in 1QFY26 vs 65.8% in 1QFY25 and 52.7% in 4QFY25.
* Equity yield stood at 55bp, and management continues to expect a 2-3bp dip YoY going forward. Commission rationalizations have been implemented across three schemes, which together account for ~45% of AUM. Currently, there are no plans for further rationalization.
* We have broadly maintained our earnings estimates, with our AUM assumptions intact and higher other income offsetting the impact of a modest yield cut. We reiterate our BUY rating on the stock with a TP of INR940, based on 41x FY27E core EPS.
Market share across categories continues to expand
* Overall MF QAAUM was up 27% YoY/10% QoQ to INR6.1t. Equity/ETFs/Index /Debt Funds saw a YoY growth of 26%/34%/47%/33%.
* NAM’s market share for QAAUM rose 29bp YoY to ~8.5%, with equity market share rising 19bp YoY to ~7%. ETF market share continues to surge, rising 197bp YoY at 19.8%, with NAM maintaining a dominant position in this space at 52% of overall industry folios.
* The share of equity remained relatively flat YoY in the range of 46-47%, while the share of ETFs improved to 28.4% from 26.8% in Jun’24. However, the share of Debt/Liquid declined to 14.7%/7.7% in 1QFY25 from 14.9%/8.5% in 1QFY25.
* SIP flows of INR97.7b were reported in 1QFY26 compared to INR75.3b in 1QFY25, reflecting a monthly SIP inflow of INR32.6b (+30% YoY). The SIP book grew to INR1.5t (+28% YoY).
* Operating expenses rose 16% YoY to INR2.2b, with opex as a % of AUM at 14.3% vs 15.6% in 1QFY25 and 14.5% in 4QFY25. Excluding ESOP costs, operating expenses rose 15.8% YoY, driven mainly by investments in talent for the non-MF business segment and enhancements in technology infrastructure.
* Employee costs rose 17%/11% YoY/QoQ to INR1.2b, with continued investments in headcount addition, while other expenses grew 18% YoY to INR772m. ESOP costs for the quarter stood at INR110m, of which INR40m pertained to the new scheme. ESOP costs are estimated at ~INR460m/INR260m-270m for FY26/FY27.
* Other income came in at INR1.5m (12% YoY).
* The distribution mix remained largely stable, with IFAs dominating the mix (56% share), followed by banks at 25% and national distributors at 19%.
* NAM’s retail/HNI/corporate AUM mix stood at 29%/30%/41% for 1QFY26 vs 30%/28%/42% in 1QFY25.
* On the product front, the company launched four new products during the year: 1) Nippon India Nifty 500 Quality 50 Index Fund, 2) Nippon India Nifty 500 Low Volatility 50 Index Fund, 3) Nippon India BSE Sensex Next 30 ETF, and 4) Nippon India BSE Sensex Next 30 Index Fund.
* Under its AIF subsidiary, the company offers Category 2 and Category 3 AIFs, and has raised cumulative commitments of INR81b across various schemes, up 25% YoY. Notably, it raised INR7b in 1QFY26 (the highest ever in a quarter). The company recently launched a real estate scheme, Nippon India Yield Maximize Optimizer, with INR3b of commitments raised.
* GIFT City funds crossed AUM of USD13m across Nippon India Large Cap Fund GIFT and Nippon India Nifty 50 Bees GIFT (Fund).
* Digital transactions grew 27% YoY to 3.6m and contributed 75% to new purchases; 41 new digital purchases/SIPs were done every minute in Q1FY26.
Key takeaways from the management commentary
* NAM delivered the fastest growth among the top 10 AMCs on both QoQ and YoY basis, gaining market share across all investor segments. Its overall market share rose to 8.49%—the highest since Jun’19. The market shares for equity net sales (in double digits) and SIP (at >10%) were much higher than the overall equity market share.
* On the offshore front, the quarter saw active inflows from various geographies across Asia and Europe. The company also continued to expand its presence in the Japanese institutional and retail markets, while expanding footprints into new regions across Asia, Europe, and Latin America.
* The SIF team, led by Mr. Andrew Holland, is already in place and preparing to launch a product soon. Management views the SIF segment as a significant opportunity and is positioning it as a distinct business vertical.
Valuation and view
* NAM has continued to expand its market share, especially in the passive segment, supported by improved fund performance, sustained investor stickiness, and ongoing product innovation. While equity segment yields are expected to decline at a relatively moderate pace, strong net flows are likely to cushion the impact on overall yields.
* We have broadly retained our earnings estimates, with our AUM assumptions intact and higher other income offsetting the impact of a modest yield cut. We reiterate our BUY rating on the stock with a TP of INR940, based on 41x FY27E core EPS.
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