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SEBI Consultation Paper to Impact Profitability, Albeit Limited!

Est. Vs. Actual for Q2FY26: Revenue – INLINE; Operating Profit – BEAT; PAT – BEAT

Changes in Estimates post Q2FY26

FY26E/FY27E/FY28E (in %): Revenue: 1.9/2.6/1.3; Op. Profit: 2.6/3.6/1.5; PAT: 2.0/2.7/0.9

Recommendation Rationale

* Negative Impact of SEBI Consultation Paper: In its consultation paper released on 28 October 2025, SEBI has proposed a series of changes to simplify processes, increase transparency, rationalize costs, and strengthen investor protection. The regulator has proposed to remove the additional 5bps expenses on the whole AUM of the scheme, where the exit load was applicable that AMCs charged earlier. However, to partially offset the impact of the proposed change, the SEBI has revised the first two slabs of the expense ratio of openended active schemes upward by 5bps. Another measure proposed is that the maximum base expense ratio has been proposed to be reduced by 15bps for open-ended schemes and 25bps for closed-ended schemes. However, SEBI has proposed to exclude all statutory levies, i.e., STT, GST, CTT, and Stamp duty, from the expense ratio limits. These developments would adversely impact the Revenue/Earnings for the company, and our rough calculations suggest a ~6-8%/8-10% cut on Revenue/Earnings over FY27-28E, if regulations are implemented. The management indicated that there would be some financial impact, though limited. However, quantification would be possible post the finalisation of the regulations.

* SIF Lanches in the Pipeline: The company has put together a team under the leadership of Andrew Holland and is working towards launching its SIF fund. The management believes SIF is likely to have an inherent demand and is currently in the process of building a strong foundation to tap the strong growth potential in the product.

* Yields to decline by ~2bps annually: NAM’s blended yield in Q2 stood at 36bps, steady QoQ, with equity yield at 54bps, debt yield at 25bps, ETF yield at 17bps and Liquid yield at 12bps. NAM has rationalised distributor commissions for ~60% of the equity portfolio. Going ahead, the management anticipates an annual yield decline of ~2bps predominantly attributed to the telescopic pricing formula, with AUM growth and new flows coming at a higher cost.

Sector Outlook: Positive

Company Outlook: Long-term prospects of the Indian AMC industry remain intact, given the low penetration levels in India vis-à-vis developed countries. It is a play on the financialization of savings in India, and NAM is likely to benefit from these trends, thereby facilitating market share gains. The recent SEBI consultation paper is expected to impact the revenue and profit pool of the AMCs; however, as per the management, the impact is not expected to be grossly damaging. We are not introducing these changes in our estimates yet, as we await further clarity from the regulator. We revise our Revenue/PAT estimates upwards over FY26-28E, with slight tweaks of 1- 3%, supported by healthy yields and strong growth. We expect NAM to deliver a healthy MF QAAUM/Revenue/Earnings growth of 21/16/14% CAGR over FY26-28E, supported by (i) Diversified product offerings, (ii) Improving market share across segments and (iii) Focus on passive offerings, and (iv) Strong SIP franchise.

Current Valuation: 36x FY27E EPS; Earlier Valuation: 34x FY27E EPS

Current TP: Rs 1,000/share; Earlier TP: Rs 925/share

Recommendation: We maintain our BUY recommendation on the stock

Financial Performance

* Operational Performance: NAM reported a MF QAAUM growth of 20/7% YoY/QoQ. MF QAAUM market share improved by 22/2bps YoY/QoQ. The share of Equity AUMs inched-up to 49.9% vs 49.2% QoQ. Equity AUM market share declined by 17bps QoQ and stood at 7.13% vs 7.04% QoQ. SIP flows were strong and stood at Rs 107.2 Bn (+19/10 YoY/QoQ) during the quarter. SIP portfolio grew by 12/1% YoY/QoQ. The company has the largest unique customer base of 21.9 Mn vs 21.2 Mn QoQ with a market share of 38.4%, flat QoQ.

* Financial Performance: Revenues growth was in-line with our expectations and de-grew by 8% QoQ and was flat YoY, mainly owing to lower other income driven by weak equity markets and higher bond yields. Core revenue from operations grew by 15/8% YoY/QoQ. Yields (as % of AUM, calc) stood at 36bps, flat QoQ. Opex growth was in-line with management guidance and stood at 16/5% YoY/QoQ. Operating profit growth was healthy at 15/11% YoY/QoQ. Operating profit margin (calc.) stood at 65.3% vs 65.5/64.0% YoY/QoQ. PAT de-grew by 4/13% YoY/QoQ.

Valuation & Recommendation

We value the stock at 36x FY27E EPS vs its current valuations of 32x FY27E to arrive at a revised target price of Rs 1,000/share, implying an upside of 15% from the CMP. We maintain our BUY recommendation on the stock.

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SEBI Registration number is INZ000161633