REDUCE on Nippon Life India Asset Management - Market share remains elusive - HDFC Securities

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities.

While we remain concerned about the loss of market share in both debt and equity assets-down 332/275bps since Mar-19 to 7.5/6.8%-we believe that post ownership change, NAM stands to benefit from increased credibility to raise HNI/institutional capital. We expect the company to focus on improving investment return performance and gradually recoup part of its lost market share, although this journey would neither be easy nor inexpensive. We expect NAM to post an FY21-23E revenue/PAT CAGR of 13.7/15.8% and retain a REDUCE rating with TP of Rs 280 i.e. at 36x (20% discount to HDFCAMC's multiple) FY22E NOPLAT + cash and investments. Any signs of improving performance and market share will be key re-rating drivers for the stock.

1QFY21 highlights: Revenue at Rs 2.33bn (-28.3%/-15.1% YoY/QoQ) was 5.1% below our estimate as outflows from the credit risk fund and a reduction of equity in the mix resulted in a lower yield. Debt/equity QAAUM market share deteriorated 246/235bps YoY to 7.5/6.8%. Debt funds QAAUM declined 9.0% QoQ due to outflows and write-downs. The core operating profit was at Rs 966mn, -33.5/36.6% YoY/QoQ, mainly due to lower revenue. Recovery in equity markets and decline in bond yields resulted in treasury income of Rs 1.03bn (+192% YoY), raising APAT by 24.3% YoY to Rs 1.56bn.

Management stated that it raised capital from HNIs/family offices (75+), corporate (26/100 BSE 100 began reinvesting), and institutions (adds: 120+ since Oct-19). NAM is revisiting its investment policy with the intent of reducing the volatility of treasury income.

Outlook: We expect a gradual recovery in assets and earnings. For FY21E, we expect revenue/EBIT to decline 15.0/21.2% YoY respectively.

Shares of Nippon Life India Asset Management Ltd was last trading in BSE at Rs.276.8 as compared to the previous close of Rs. 270.2. The total number of shares traded during the day was 74386 in over 2689 trades.

The stock hit an intraday high of Rs. 286.45 and intraday low of 275. The net turnover during the day was Rs. 20797120.

Source : Equity Bulls

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