Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities
UTIAM posted better-than-estimated revenue (+8% vs. estimates), led by spectacular growth (4.25x QoQ) in the retirement solutions business; however, high staff costs continue to pose a significant challenge to core profitability. We draw comfort from the management's commentary around the healthy NFOs pipeline, buoyant flows environment, and strong growth prospects of the retirement solutions business and raise our AUM growth estimates. We expect UTIAM to deliver FY21-23E revenue/NOPLAT CAGRs of 21/49% as a consequence of strong AUM growth coupled with cost rationalisation. We raise our implied multiple on UTIAM and maintain a BUY with an increased target price of INR 1,140 (26.2x Mar-23E NOPLAT + cash and investments).
Q1FY22 highlights: Revenue was 8% ahead of our estimates at INR 2.6bn (+11% QoQ) led by impressive growth (4.25x QoQ) in the retirement solutions segment; this was partly a result of higher fees and partly of strong flows. Staff costs at INR 943mn (+27% QoQ) continue to remain elevated on the back of increments (INR 40mn) and other accruals booked during the quarter and other operating expenses rose sequentially on account of the PFRDA fee expense (1.5bps). The core operating profit, at INR 1bn (+0.4% QoQ), was in line with estimates as higher revenue was offset by higher staff costs and other expenses. The accrual of profits to the tune of INR 240mn from sale of investments by a VC (stake sale in Big Basket) resulted in higher-than-estimated treasury income, driving APAT +16% QoQ to INR 1.55bn.
Positive flows environment: For the equity segment, net inflows grew 2.3x sequentially (indicating better than industry flows) to INR 18bn with a market share of ~4%. The management highlighted that the NFO pipeline remains healthy with Focussed Equity Fund and Multi-cap Fund already securing SEBI approvals. On the back of a buoyant flows environment, healthy NFOs pipeline, and strong growth prospects of the retirement solutions business, we raise our revenue estimates for FY22E/23E, partially offset by the lower cost rationalisation. We cut our tax rates from 25% to 20% to account for foreign subsidiaries with high tax losses, resulting in a sharp rise in our PAT estimates.