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Market rally improves outcomes for now

Result Highlights (See “Our View” below for elaboration and insight)

* Revenue: Revenue from operations at Rs 6,431mn was up 11.9%/18.1% QoQ/YoY, compared with growth in QAAUM of 8%/22% QoQ/YoY

* Share of Equity in AUM: Share of Equity in AUM (including Hybrid funds) at 57.6% was up 340 bps QoQ and 570 bps YoY

* Share of B-30 in AUM: Share of B-30 in AUM at 18.2% was up 100 bps QoQ and 70 bps YoY

* Channel mix: Share of Banks, MFDs, NDs and Direct channel was 13.1%, 38.6%, 24.6% and 23.7%, respectively in Equity QAAUM

* Operating profit margin: Operating profit margin for the quarter, at 75.0%, was up 40 bps QoQ and 72 bps YoY

Our view – Market rally improves outcomes for now 

* The calculated overall revenue yield has risen ~2 bps QoQ to 49 bps, driven by favourable changes in segment mix: The share of equity funds has risen 340 bps QoQ to 57.6%. The yield in the equity business was 68 bps in the sequentially previous quarter whereas this has declined to 67 bps in 2Q. The reasons for decline in yield include flow yield being lower than book yield and increased AUM causing funds to move past TER slab thresholds

* Last quarter, net inflows into debt funds were positive but were concentrated at the short-end: The debt fund market share has improved on QoQ basis but, optically, declined on YoY basis. The YoY decline is on account of not participating in debt index funds and one should not read too much into this.

We maintain ‘NEUTRAL’ rating on HDFCAMC with a revised price target of Rs 2,900: We value HDFCAMC at 33x FY25 P/E, with the implied P/B being 10.1x.

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