UTI Asset Management Company - Results Report - Lower expenses drive beat! - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

While UTIAM's market share and equity performance improved in FY21, high staff costs continue to pose a significant challenge to core profitability. AUM growth along with cost rationalisation is expected to drive near-term performance; we expect the company to deliver an FY21-23E revenue/NOPLAT CAGR of 13/29%. We retain a BUY with a DCF-derived target price of INR750 (10% execution discount to DCF), valuing the stock at 19.7x Mar-23E NOPLAT + Mar-22E cash and investments. The stock is currently trading at FY22E/23E EV/NOPLAT of 18/14.4 and P/E of 20.7/17.4x.

4QFY21 highlights: Revenue was broadly in line (+1.1% vs. estimate) at INR2.35bn (+29/11% YoY/QoQ). Revenue yields improved 0.3bps QoQ as share of equity improved 72bps sequentially to 40%. Core operating profit at INR1bn (+2.9x/1.1x YoY/QoQ) was 16% ahead of estimates, mainly because of lower employee costs (-33/36% YoY/QoQ), partially offset by higher other operating expenses (+54/38% YoY/QoQ). Employee costs were down as a result of (1) reversal of excess variable pay to the tune of INR70mn, (2) broader staff cost rationalisation, and (3) lower ESOP expenses. Other operating expenses rose on the back of one-offs i.e., unspent CSR costs expensed out amounting to INR90mn. Lower than estimated treasury income of INR5.14bn resulted in APAT at INR1.4bn (-5% QoQ).

For the equity segment, UTIAM received net inflows of INR 6bn translating into a market share of ~23%. Management highlighted that UTIRSL (UTIAM's subsidiary) has been appointed as one of the fund manager with PFRDA, and will generate fees of ~5bps vs. 1bps (earlier in FY21). We have revised our estimates to build in higher fees from retirement funds business.

Outlook: Over FY21-23E, we expect AUM growth to pick up and employee costs to soften. For FY22E, we expect revenue/NOPLAT to grow by 17/38% YoY.

Source : Equity Bulls

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