Nippon Life India Asset Management - Downgrade from Buy - ICICI Securities

Annual Report Takeaways: Digital capabilities and diversified portfolio are strong growth enablers

Nippon Life Asset Management (NAM) has witnessed multiple positives in FY21. These include: (1) 10% YoY growth in revenue in Q4FY21 and 15% YoY decline in operating expenses in FY21, (2) growing passive (42% ETF folio share) and non- MF product portfolio (AUM Rs1.32trn), (3) improvement in retail traction (of the total 2mn unique investors added by MF industry in FY21, 0.9mn were added by NAM), (4) improvement in ESG initiatives and (5) upping the ante on digital capabilities. Post 13% rally in past three month, we downgrade the stock from BUY to ADD with an unchanged target price of Rs396 based on 35x core EPS of Rs9.8 and add cash & investments of Rs54 /share.

- Yield decline in FY21 driven by mix: Investment management fees declined from 55.7bps in FY20 to 49.7bps in FY21. Based on FY21 AAUM, overall AUM declined 2% YoY to Rs2.1trn. Mix of ETF increased from 13% in FY20 to 15% in FY21 and equity mix declined from 43% in FY20 to 39%. Debt mix increased to 31% in FY21 vs 29% in FY20 and liquid mix remained stable at 15% of AAUM.

- NAM expects a competitive edge in passive segment: The intrinsic importance of volumes in ETF is lending a meaningful head start to NAM's passive strategy. The company has the industry's largest bouquet of 22 ETFs (AUM of Rs373bn with 13% market share) spread across equities, debt and gold. NAM has industry's highest ETF folios (~42% market share). With 72% market share in ETF volumes on NSE and BSE in Q4FY21, NAM is poised to play the volume game in the segment. Although profitability is low, higher volumes in ETF segment can deliver Rs350mn-400mn (based on 10bps yield) to profitability.

- ESG measures strengthened in FY21: Board approved that all the new investments must be done only in AA and above rated issuers. Board inducted Mr Yutaka Ideguchi, Mr Parekh Ashvin and Mr B Sriram - who bring with them decades of experience in international operations, oversight, credit & risk, and other critical operational aspects. NAM has provided last trimester travel allowances to mom-to-be employees, crèche allowance for two years after completing post-maternity leaves and a Sabbatical Policy to improve work-life balance.

- NAM has upped its digitalisation game: NAM conducted 500 online training sessions for its 78,400 distributors in FY21. It also added PhonePe as its digital partner. NAM has over 20 digital partners. Digital business witnessed a strong growth of 31% (1.8mn purchase transaction) in FY21. Share of digital business in lumpsum and SIP purchase transactions rose to 50%/59% in FY21 vs 46%/35% in FY20. Around 24% investors transacting online were new customers. NAM also launched industry's first Business EASY 2.0 app, which offers digital solutions to its mutual fund distributors for customer relationship management. The company has enhanced digital ecosystem with automated SMS/email communications (nudges for retention, SIP pause, payment retry) and improved platform experience with push notifications on branded apps, e-KYC process.

Shares of Nippon Life India Asset Management Ltd was last trading in BSE at Rs.368.15 as compared to the previous close of Rs. 372.2. The total number of shares traded during the day was 50125 in over 1253 trades.

The stock hit an intraday high of Rs. 376 and intraday low of 366.3. The net turnover during the day was Rs. 18555335.

Source : Equity Bulls

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