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Another stellar quarter

Nippon AMC’s strong run continues with its QAAUM increasing 57% yoy and 14% qoq to Rs5.5tn at end Q2FY25. The market share on both, equity and overall basis has increased with it maintaining its fourth position in the industry. The net flows in the equity and hybrid segment continued to remain higher than the equity AUM market share. At end Q2, PAT increased 47% yoy impacted by one-offs on the taxes announced in the budget. While core PAT expanded 48% yoy to Rs2.7bn, core operating profit increased 55% yoy to Rs3.7bn. We increase our PAT estimates by 8-15% over FY25-27 reflecting the strong momentum. We maintain the target multiple at 33x EPS, i.e. +1sd from the long-term mean, rolling over the valuation to Sep’ 26. These lead us to a revised TP of Rs. 850 (vs Rs. 735 earlier). We upgrade the stock to BUY from ADD.

Strong momentum leads to market share increase

At end Q2FY25, Nippon AMC’s QAAUM (Quarterly Assets Under Management) grew at a strong 57% yoy and 14% qoq to Rs5.5tn (in line). Major reason is the equity segment which grew 71% yoy to Rs2.8tn, thereby comprising 51% of the total AUM vs 47% in Q2FY24. At Rs 1.4tn, the company's SIP AUM increased 74% yoy. In Q2, the market share (QAAUM) grew by 83bps yoy and 9bps qoq to 8.3%, the sixth consecutive quarter of market share growth. The equity QAAUM market share increased to 7.4%, up 50bps yoy and 10bps qoq. Baking in Q2 print of a strong momentum, we increase our AUM estimate by 14-17% over FY25-27 to Rs8.4tn (vs 7.4tn earlier).

Yields stable

Revenue yields (calc.) on overall basis was broadly stable at 42bps at end Q2FY25. In Q2, the equity yields stood at 58bps, debt was at 25bps, liquid was at 12bps and ETFs was 15bps. Management asserted that rationalization of commission paid to distributors was done on the entire book.

PAT, core operating profits post strong growth

Nippon AMC’s revenue from operations increased 44% yoy to Rs 5.7bn at end-Q2FY25 (vs our estimate of Rs5.6bn) and other income grew 55% yoy to Rs 1.2bn. The PBT of Rs4.9bn beat our estimate by 14%. Core operating profit grew 55% yoy to Rs 3.7bn whereas core PAT grew 48% to Rs 2.7bn. PAT grew 47% yoy to Rs 3.6bn. The tax rate grew to 26% owing to higher taxes (one-off) announced in the budget. We increase our PAT estimate by 8-15% over FY25-27 to Rs 17.6bn (vs Rs 16.2bn previously). The company announced an interim dividend of Rs 8 per share.

Upgrade to BUY

We expect a 17% net profit CAGR over FY24-27 driven by 25% CAGR in MF QAAUM. The valuation is rolled over to Sep'26E EPS. The stock is now trading at 27x Sep'26E EPS and we continue to value the company at an unchanged target multiple of 33x, i.e. +1sd from the long-term mean. The rollover and earnings revision result in a revised TP of Rs850 (up from Rs 735 previously), upgrading it to BUY from ADD. Preferred pick. Key risks: slowdown in AUM growth, equity net outflows, scheme under performance and regulatory intervention in TER.

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