Buy SBI Funds Management Ltd For Target Rs.720 by Motilal Oswal Financial Services Ltd
Trusted legacy; plethora of future possibilities
* SBI Funds Management (SBIFUNDS) is India’s leading asset manager with a total QAAUM of INR29.1t as of Jun’26, including INR12.6t of MF QAAUM, INR16.5t of PMS/advisory QAAUM, and INR68b of AIF AUM.
* The company’s MF QAAUM recorded a 19% CAGR over FY21-26, driven by a 33%/20% CAGR in equity/passive QAAUM. Rising trajectory of monthly SIP flows (INR40b from INR25b in Mar’24) and 98% of SIPs registered for >36 months provides visibility for continued inflows, becoming a building block for our expectation of 15% FY26-28 equity AUM CAGR.
* The AMC’s relatively low concentration in its top five equity schemes (~56% of equity AUM), along with the launch of NFOs, support ~62bp equity yields. With equity already accounting for ~47% of MF QAAUM vs. ~30% in FY21, we expect the continued mix shift towards equity along with optimal commission payouts to support gradual rise in MF yields to ~36bp by FY28.
* SBIFUNDS is also accelerating growth in higher-yielding AIF, PMS, and offshore businesses (~4% of operating revenue on INR16.5t of AUM). Its newly launched SIF business has already reached INR35b QAAUM, and 25.8% market share within a few quarters. A strong scheme pipeline provides an incremental growth and yield improvement avenue.
* Access to 23,265 SBI branches and 100m+ YONO user base remains a structural distribution advantage, accounting for ~20% of overall AUM and ~35% of equity AUM. Less than 2% of SBI’s eligible customer base has been tapped, leaving substantial runway for penetration.
* Opex at just 8bp of AUM in FY26 reflects industry-leading cost efficiency. Continued operating leverage should drive opex down to ~7bp by FY28, supporting an ~81% EBITDA margin.
* We expect 13% MF AUM FY26-28 CAGR, gradually improving yields, and a rising contribution from alternates to drive a 14% FY26-28 revenue CAGR. Supported by ~81% EBITDA margins and continued cost efficiency, PAT is expected to clock ~16% CAGR, translating into a 51-52% RoE. We initiate coverage on the stock with a BUY rating and a TP of INR720, based on FY28E core P/E of 42x
Market leader in a structurally underpenetrated industry
* India’s MF AUM to GDP ratio sits at ~21% against a global average of ~75% and 125%+ in the US despite industry AUM growing from INR32t in FY21 to INR83t as of Jun’26, reflecting underpenetration despite strong growth. Unique investors at 62m are less than 5% of the country’s population, reflecting significant headroom for growth.
* Within this underpenetrated industry, SBIFUNDS is positioned as the largest AMC with an MF QAAUM of INR12.6t (15.1% market share), the largest passive player (27.4% market share), and 25.8% market share in the emerging SIF space. Additionally, it has a strong institutional presence with INR16.5t of PMS AUM and a AIF AUM of INR68b.
* The growing SIP franchise further strengthens the quality of this growth, with SIP AUM reaching ~INR2.1t and monthly SIP flows increasing to ~INR40b.
* As household savings progressively shift towards financial assets, its distribution reach and broad product suite across MF, SIF, AIF, PMS etc. position it to capture this incremental pool across customer cohorts.
Multiple levers for yield expansion
* Rising share of equity AUM in the mix at 46.4% (~30% in FY21) has driven the yield expansion from 30bp to 35bp+ with robust equity yields at ~62bp. Low concentration of large equity schemes and optimal commission structure benefit the company’s equity yields.
* The newly launched SIF segment is a yield upgrade opportunity sitting inside the equity bucket with potentially high TERs compared to normal equity schemes and a sticky HNI investor base.
* On the alternates side, while institutional PMS yields are structurally lower, they help in building scale and strengthen institutional engagement. The company is also scaling the retail/corporate PMS along with the AIF piece (QAAUM at INR68b from INR39b in Mar’24) to capture the next big revenue opportunity
Valuation and view: Initiate coverage with a BUY rating
* SBIFUNDS is a high-quality, structurally compounding AMC franchise, supported by its market leadership, SBI-led distribution moat, underpenetrated MF industry, and significant operating leverage.
* We expect 13% MF AUM FY26-28 CAGR, gradually improving yields, and a rising contribution from alternates to drive a 14% FY26-28 revenue CAGR. Supported by ~81% EBITDA margins and continued cost efficiency, PAT is expected to clock ~16% CAGR, translating into a 51-52% RoE. We initiate coverage on the stock with a BUY rating and a TP of INR720, based on FY28E core P/E of 42x.
* Our valuation reflects SBIFUNDS's superior franchise quality and profitability while remaining cognizant of key risks around market-linked AUM volatility, TER/regulatory changes, and pressure on active-equity yields.
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