Buy SBI Funds Management Ltd For Target Rs.590 by Motilal Oswal Financial Services Ltd
EBITDA in line; other income drives PAT beat
* SBI Funds Management’s (SBIFUNDS) operating revenue grew 9% YoY/4% QoQ to ~INR11.9b (in line). Yields came in at 36.4bp in 2QFY27 vs 36.5bp in 2QFY26 and 36.7bp in 1QFY27. For 1HFY27, operating revenue grew 12% YoY.
* Total opex stood at INR2.8b (19% higher than est.), growing 22% YoY/22% QoQ. EBITDA came in at INR9.1b (in line), rising 5% YoY. EBITDA margin stood at 76.5% vs 79.1% in 2QFY26 and 80.1% in 1QFY27.
* Beat on other income resulted in 7% PAT beat, which stood at INR7b, declining 6% YoY and 20% QoQ. For 1HFY27, PAT declined 1% YoY. PAT margin stood at 58.8% vs 68.1% in 2QFY26 and 76.4% in 1QFY27.
* The marginal decline in blended yields was attributed to a change in asset mix rather than broad-based pressure on product yields. On the expense front, employee expenses are expected to remain at the 2Q run rate going forward.
* We have broadly kept our estimates intact considering the in line operating performance in 2QFY27. We reiterate our BUY rating on the stock with a TP of INR590, based on a valuation of 38x FY28E core P/E.
MF AUM continues to grow with industry leading market share of 15%
* Overall MF QAAUM grew 9% YoY/4% QoQ to INR13.1t, driven by 12%/18%/10%/22% YoY growth in equity (incl. hybrid)/liquid/ETF/other QAAUM, while debt QAAUM declined 20% YoY.
* Overall, average AUM declined 6% YoY due to a decline in PMS & advisory AUM to INR26.5t in 2QFY27, with the asset mix comprising equity at 23%, debt at 6%, liquid at 6%, passives at 16%, and AIF/PMS assets at 50%.
* PMS & advisory QAAUM declined 17% YoY to ~INR13.3t (INR16.1t in 2QFY26) due to the reallocation of a large institutional mandate; however, the impact on revenue is not material.
* AIF QAAUM increased 25% YoY to INR74b. Yields on the non-mutual fund business are approximately 35–40bp, excluding the advisory component.
* Passive QAAUM stood at INR4.15t as of Sep’26, growing 11% YoY, indicating a market share of 27.4%. SIF QAAUM stood at INR44b, indicating a market share of 16.2% vs INR35b in 1QFY27.
* Monthly SIP flows improved 3% YoY to INR39b for Sep’26, with SIP AUM at INR2.1t (+15% YoY), indicating a market share of 12.3%. 3.6m fresh SIPs were added during the quarter, taking the live SIP count to 16.2m.
* In terms of channel mix, the direct channel continued to dominate the overall asset sourcing mix with a 57% share, followed by banks at 24%, with SBI contributing 21%, MFDs 11%, and national distributors 11%.
* In terms of equity MAAUM, the distribution mix for MFDs/national distributors/direct/SBI/other banks stood at 20%/13%/27%/35%/5%.
* Unique customers stood at 18.5m as of Sep’26, rising 10% YoY. Total live folios stood at 22.7m, rising 12% YoY during the same period.
* Five products were launched in 2QFY27, including one SIF. The pipeline across mutual funds, AIFs, PMS, and SIFs provides opportunities to widen the product offering.
* Opex, as a percentage of QAAUM, stood at 8.3bp in 2QFY27 vs. 7.4bp in 2QFY26 (est. 7.3bp).
* Employee costs at ~INR1.3b (22% higher than est.) rose 21% YoY/25% QoQ.
* Other expenses at ~INR1.4b (15% higher than est.) rose 22% YoY/18% QoQ.
* Overall expenses increased due to one-off technology infrastructure spending and the appointment of a new AIF business head.
* Other income came in at INR447m vs INR1b in 2QFY26 and our expectation of negative INR250m.
Valuation and view
* The mutual fund business remains strong, supported by continued growth in AUM, resilient SIP flows, and a robust SBI-backed distribution network. Continued improvement in flows and yields remains key earnings drivers. PMS & advisory business earnings remain unaffected by the reallocation of a large mandate, while AIF and SIF AUM continue to rise. Increased investments in technology are expected to enhance productivity.
* We have broadly kept our estimates intact, considering the in line operating performance in 2QFY27. We reiterate our BUY rating on the stock with a TP of INR590, based on a valuation of 38x FY28E core P/E.
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