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Steady yields; softer MTM gains

* HDFC AMC’s 2QFY26 PAT (+25% yoy/-4% qoq) was weighed down by lower treasury gains, higher CSR & NFO-related opex offset by one-off tax reversal.

* Revenue yields commendably stable at 46bp despite a 6% qoq rise in QAAUM due to rationalization in distribution payout and favourable AUM mix.

* We appreciate the consistent market share gains and stable yields, although we feel the valuation is stretched. Retain HOLD with a higher TP of Rs5,800.

Cushioned PAT; one-time tax reversal offsets MTM dip/higher costs

HDFC AMC reported 2QFY26 PAT of Rs7.2bn, up 25% yoy and down 4% qoq, largely in line with estimates, despite a higher-than-expected drop in other income and a rise in expenses, as the company benefitted from a one-off income-tax reversal. The reassessment of income-tax provision resulted in a reversal of Rs 468m, leading to a lower tax rate for the quarter at ~18% vs. the run-rate of ~24%. Excluding this, PAT would have been lower by 7% at Rs6.7bn.

Healthy AUM growth with strong SIP/STP inflows

QAAUM grew by 16% yoy and 6% qoq to Rs8.8tr driven by strong inflows, as the mark-to market (MTM) gains were subdued. The overall market share was lower by ~10bp qoq at 11.5% due to heavy outflows from liquid schemes. Equity QAAUM grew by 14% yoy and 8% qoq, while the market share expanded sequentially by ~10bp to 12.9%. Systematic investment plan (SIP) and systematic transfer plan (STP) inflow increased by 13% qoq to Rs45bn and SIP AUM rose by 2% qoq to Rs2tr. Debt funds grew by 20% yoy and 9% qoq, constituting ~21.1% of assets under management (AUM).

Resolute topline; opex inches up though remains range-bound

Revenue yield was commendably flat qoq at 46bp, despite the healthy rise in AUM, largely on account of continued benefit from the cut in distribution payout and a favourable AUM mix towards the high-yielding equity segment. Other opex was up by 20% qoq and 16% yoy due to higher business promotion and CSR expenses. The company launched two NFOs - HDFC Innovation Fund which collected Rs24bn, and HDFC Diversified Equity which collected Rs11bn, pushed up other opex.

Outlook and valuation

HDFC AMC continues to maintain consistent leadership in equity and equity-oriented schemes. It is noteworthy that the AMC continued to minimize the impact of telescopic pricing, despite the rise in AUM, through a favourable mix and selective rationalization of distribution payout. We remain positive on inflows and market share gains; however, we believe that its valuation is stretched, and maintain HOLD rating on the stock with a higher target price of Rs5,800 (Rs5,600 earlier), valuing it at 37x FY27F EPS. Downside/upside risks: Slower inflows and vice-versa.

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