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AuM growth over industry rates: Nippon Life India AMC reported AuM growth of 7.7% QoQ/29% YoY to Rs 3,777 Bn. The growth remained strong over and above the industry growth of 4.7% QoQ/22.2% YoY. Due to growth above industry growth, NAM India saw an increase in its market share to 7.7% growing by 21.3bps QoQ/40bps YoY. The growth in AuM was led by equity funds which increased by 12% QoQ/41% YoY. Along with equity funds, ETFs funds reported strong growth of 13% QoQ/39% YoY with strong growth in volumes. Debt funds remained flat on a QoQ while liquid funds declined by 12% QoQ/17% YoY mainly due to consumer preference over equity funds.

Yields remained flat: Blended yields on AuM remained flat declining by 1bps QoQ/4bps YoY to 44.8bps. Yields remained low as the company increased proportion of new funds replacing old at a higher acquisition costs which put pressure on overall yields. The management expects yields on remain flat over 1-2 years going forward. Yields on AuM declined from 47bps in Q3FY23 to 45bps in Q3FY24

Growth in margins and profitability: Owing to the strong growth in AuM, the company saw an increase in top-line growth as revenue from operations increased by 6.6% QoQ/18.7% YoY. The company managed to control its costs by leveraging tech due to which EBITDA increased by 7.4% QoQ/21.2% YoY to Rs 254 Cr. PAT increased by 12.5% QoQ/33.3% YoY along with a margin improvement of 110bps QoQ/351 bps YoY to 54.5%. The company expects growth in its AuM going forwards as it seeing traction in the inflows which is expected to be the key driver going forward.

Traction in retail investors: NAM-India continues to be popular choice amongst retail investors which has seen growth in the AuM. As on December 2023, the company saw an increase in market share of retail investors to 9% increasing by 10bps QoQ/40bps YoY. Retail investors proportion in the AuM mix increased by 100bps QoQ/YoY to 31%. The SIP quarterly book was Rs 59.3 Bn, increasing by 25.6% QoQ/103.8% YoY. Total number of SIP under Rs 10,000 stood at 75%. The company prefers small ticket investors as compared to the large tickets investors which helps in retention of investors.

Leadership in ETFs funds: The company continues to hold leadership position in the ETFs funds. With respect to ETFs, it has a market share of 61% in terms of value and 64% in terms of volume. The daily volume remains higher than the industry. The management expects that the leadership of the company in ETFs will continue due to the performance of the underlying funds and its wide distribution reach.

Valuation and outlook: We remain positive on NAM India has the company is seeing strong growth in its AuM which is higher than the industry growth leading to gain the market share in the last 4 quarters. The growth in revenue will be majorly driven by AuM as the yields are expected to remain flat in few quarters. The company remains leader in the ETFs segments and is seeing traction in the retail SIP quarterly book. It also has higher share of AuM in the B-30 cities as compared to its peers. We expect revenue/EBITDA/PAT to increase by 27.7%/33.2%/28.8% CAGR over FY23-26E. We revise our rating to Accumulate (from Buy earlier) and our target price to Rs 601 valuing the company at 25x of its FY26E EPS.

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