Buy Aditya Birla Sun Life AMC Ltd For Target Rs. 780 by Motilal Oswal Financial Services Ltd
Better-than-expected income leads to beat on PAT
* Aditya Birla Sun Life AMC’s (ABSLAMC) 4QFY25 operating revenue grew 17% YoY to ~INR4.3b (in line), leading to a ~0.9bp YoY improvement in yield on management fees to 44.9bp (vs. our est. of 45.4bp). For FY25, revenue grew 25% YoY to INR16.8b.
* Total opex grew 15% YoY to INR1.8b (in line), with a cost-to-income ratio of 43.1% (vs. 44% in 4QFY24). EBITDA came in at INR2.4b (in line), up 19% YoY, with margins at 56.9% (vs 56% in 4QFY24 and our est. 57.6%).
* The better-than-expected other income led to a 12% beat on PAT to INR2.3b, up 10% YoY/2% QoQ. For FY25, PAT grew 19% YoY to INR9.3b.
* Market volatility led to a temporary dip in SIP flows. However, management remains confident that SIP momentum will recover as fund performance continues to improve (85% of funds are meeting the benchmarks).
* We have kept our estimates largely unchanged. Reiterate a BUY rating with a TP of INR780, based on 25x Mar’27E core EPS.
AUM growth remains flat QoQ; equity mix declines YoY
* Total MF QAAUM grew 15% YoY/flat QoQ to INR3.82t, led by 9%/13%/18%/16%/13% YoY growth in Equity/Debt/ETF/ Hybrid funds/Index. Equity QAAUM contributed 35% to the mix in 4QFY25 vs. 37% in 4QFY24.
* The alternate and offshore business is gaining traction, with AUM growing 16% YoY to INR153b in 4QFY25. PMS/AIF AUM grew 268% YoY to INR113b, driven by the inclusion of ESIC AUM from 4QFY25, while offshore AUM grew 14% YoY to INR121b. Several fundraising events are currently underway across the AIF/PMS, offshore, and real estate segments.
* SIP flows increased 5% YoY to INR13.2b. However, they declined 5% QoQ, mainly due to a 19% QoQ decline in SIP registrations to 543k in 4QFY25. About 95%/89% of total SIPs have a tenure of over 5/10 years.
* The distribution mix remained stable in overall AUM. The direct channel continued to dominate the mix with a 43% share, followed by MFDs (32%), national distributors (17%), and banks (8%). However, in equity AUM, MFDs contributed 54% to the distribution mix.
* Opex as a % of QAAUM remained flat YoY at 19.4bp in 4QFY25 (in line with estimates). Employee costs grew 17% YoY to INR988m (6% more than the estimate), while other expenses grew 11% YoY to INR739m (6% lower than the estimate).
* Other income improved 87% sequentially to INR720m, mainly due to benefits from rate cuts leading to an improvement in the MTM of debt funds.
Key takeaways from the management commentary
* Inflows into equity funds strengthened, driven by improved investment performance and a focused on-ground sales push. During the quarter, the company also organized an exclusive event to deepen relationships with key distribution partners.
* For 4QFY25, yields for Equity/Debt/Liquid stood at 68-69bp/24-25bp/12-13bp. For PMS/AIF, they stood at 1%+, for Offshore (GIFT City) at 1%+, and for other Offshore (except GIFT City) at 30-40bp.
* Management plans to add 30 new emerging locations in FY26 to the existing 89. ESOP costs for the quarter stood at INR13m. For next year, no material ESOP costs are expected as most of the costs have been absorbed.
Valuation and view
* Market share across segments is expected to improve with an improving fund performance (~85% of funds are beating benchmarks). The expansion of the alternate and offshore business, strong fund performance, market share improvement, and re-bounce in SIP flows will be beneficial for the company’s profitability.
* We have kept our estimates largely unchanged. Reiterate a BUY rating with a TP of INR780, based on 25x Mar’27E core EPS.
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