Buy Nippon Life India Asset Management Ltd For Target Rs. 777 By JM Financial Services
Inline operating performance; other income disappoints
NAM reported in-line operating performance, with core revenues at INR 5.88bn (+3% QoQ, +39% YoY, -1% JMFe) as overall QAAUM grew +51% YoY/+3.8% QoQ and revenue yields help up at 41.3bps (-0.3bps QoQ). However, lower than expected other income of INR 154mn (-87% QoQ) resulted in a miss on total revenue (-12.8% QoQ, -6.3% JMFe) and depreciated PAT of INR 2.95bn (-18% QoQ). Opex (+23% YoY, +3% QoQ) was higher due to ESOP costs of INR 110mn in Q3 while core PBT (PBT excluding other income) grew +3.0% QoQ, +50% YoY and came in at 26bps (-1bp QoQ) of QAAUM - along expected lines. Muted sequential results were primarily due to subdued growth in equity QAAUM to INR 2,829bn (+3.4% QoQ) as equity markets declined ~8% in Q3. Moderation in fall of revenue yields was explained by rationalization of distribution commissions of Large-cap and Multicap schemes in Q3 (combined AUM of ~INR 760bn), after Small-cap fund earlier in th year. Mgmt. highlighted that these three schemes amount to about 45%-50% of AAUM and that it will look for similar opportunities in the remaining book to arrest the pace of decline in yields. SIP market share further improved and moved to double digits during 3Q25 while equity AUM market share improved 3bps QoQ to 6.99%. Expenses should moderate from hereon with normalising ESOP costs and only a gradual expansion in branches. We adjust our FY25/FY26 earnings estimates by +2/-4% and roll forward to FY27, valuing NAM at 26x FY27 EPS of INR 30, to get a revised TP of INR 777. With its strong market share gains and continued focus on SIPs across schemes, NAM remains our top pick in the AMC space. Reiterate BUY.
* Core revenues in-line; other income lower due to MTM decline: Pace of growth in equity QAAUM of INR 2,829bn moderated to 57% YoY/3.4% QoQ as equity markets declined ~8% in Q3. Core revenue was in-line at INR 5.88bn (+3% QoQ, +39% YoY, -1% JMFe) while other income declined 87% QoQ. Mgmt. explained the decline was majorly due to decline in equity investments made in AIF schemes as a part of seed capital requirement. Revenue yields held up well at 41.3bps QAAUM (-0.3bps QoQ) as the company rationalised distribution commissions of Large-cap and Multi-cap schemes. Mgmt. highlighted that schemes amounting to about 45-50% of AAUM have seen rationalisation and that it will look for similar opportunities in the remaining book to arrest the pace of decline in yields.
* Expenses growth to taper off gradually in the medium term: Expenses were elevated at INR 2.12bn, +22.8% YoY, +2.7% QoQ - led by other operating expenses (+8.1% QoQ, +25% YoY) and sustained employee expenses at INR 1.07bn (+22% YoY), with ESOP expenses of INR 110mn in Q3. Expenses should moderate from here on with reducing ESOP costs (~INR 450mn/225mn in FY25/FY26) and only a gradual expansion in branches.
* Operating PBT strong at 26bps (-1bp QoQ & YoY) of QAAUM: Operating PBT came in at INR 3.76bn (+50% YoY, +3.0% QoQ) as NAM gained equity AUM market share (+12bps QoQ in Q3) to 6.99%. Mgmt. mentioned that SIP market moved to double digits during 3Q25. While expenses were ahead of expectation, opex intensity (total costs to QAAUM) was flat QoQ/-3bps YoY at 15bps of QAAUM.
* Valuation and view: At CMP, the stock trades at 25x/21x FY26/FY27 JMFe EPS. NAM has grown its equity AAUM at a faster pace compared to listed players over the trailing 12 months. This is expected help the company in accruing steady revenues despite market weakness translating into earnings stability (we expect EPS CAGR of 18.4% over FY24- FY27e).We adjust our FY25/FY26 earnings estimates by +2/-4% and roll forward to FY27, valuing NAM at 26x FY27 PAT with TP of INR 777. With its strong market share gains and continued focus on SIPs across schemes, NAM remains our top pick in the AMC space. Reiterate BUY.
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SEBI Registration Number is INM000010361
