PL Sector Report - Asset Management Companies - Apr-Jun’23 Earnings Preview – Equity to see traction; profitability to be intact

Asset Management Companies - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Apr-Jun’23 Earnings Preview – Equity to see traction; profitability to be intact

Industry MAAuM as at May’23 stood at Rs42.95trn of which equity/debt share was 38.6%/19.5%. Excluding NFOs, Apr’23 and May’23 combined, saw equity net flows of Rs66.9bn compared to Rs388.1bn in Q4FY23 as Q4 is usually stronger partly due to ELSS flows. Net equity flows in Q1FY24 are expected to be softer QoQ as 1) redemptions are higher when equity markets perform well and 2) debt is expected to provide superior returns as interest rates have peaked, which may translate to higher debt flows. As anticipated, debt is witnessing a trend reversal since Mar’23; total outflows over Apr’22 to Feb’23 were Rs1.84trn while Mar’23 to May’23 saw net inflows of Rs608bn.

As equity market has done well in Q1FY24 (+11.9%), we expect companies in our coverage to see better overall/equity QAAuM growth at 1.6%/5.8% QoQ (vs 0.4%/0.5% in Q4FY23). QAAuM growth for HDFC AMC would be superior to UTI AMC owing to better equity performance, although UTI AMC could see sharper QoQ growth in core income as in the last quarter had seen some one-offs. Core PAT yields may enhance 1.2bps QoQ to 11bps.

♦ Overall/equity QAAuM set to grow by 1.6%/5.8% QoQ led by HDFC AMC: Coverage AMCs would see QAAuM growth of 1.6% QoQ to Rs6.99trn, mainly led by HDFC AMC. Owing to strong equity performance, QAAuM for HDFC AMC could grow by 0.7% to Rs4.53trn; equity QAAuM is expected to see an uptick of 6.8% QoQ. UTI AMC is expected to see a 3.2% QoQ growth in overall QAAuM to Rs2.46trn, while equity could grow by 2.9% QoQ to Rs789bn.

♦ Revenue yields to remain stable at ~47bps: Upmove in equity markets and better debt outflows should result in flat to improving yields for our companies. Conservatively, we have assumed yields to remain flat QoQ at 47bps. We envisage revenue for our coverage AMCs to slightly increase by 0.5% QoQ to Rs8.1bn. For HDFC AMC, yields remaining flat would not materially impact core profitability although for UTI is more sensitive to yields

♦ Opex to slightly decline QoQ at Rs3.33bn: We see a ~1.0% moderation in employee cost and other opex mainly led by UTI AMC, since last quarter the company saw certain one-offs. For HDFC AMC we expect opex to rise by 3.7%. On staff cost front, ESOP charge and variable pay would key monitorables.

♦ Core profitability to remain stable at ~27.5bps: Flat yields and moderating opex should keep overall pre-tax profitability intact for our AMCs at 27.5bps. On a post-tax basis, UTI AMC could see core income improve from 9.6bps to 10.8bps. As a result, overall core PAT for coverage AMCs might improve by 2.6% to Rs3.7bn.

(Click on the Link for Detailed Report)