Maintain ADD on Nippon Life India Asset Management - Improving performance to drive flows - HDFC Securities

Revenue was 3.1% below the estimate as a consequence of pressure on revenue yields. NAM has been able to stabilise its market share in the high-margin equity segment at 7% over the past two quarters. We expect it to focus on improving performance to continue recouping its lost market share. Additionally, we expect the company to benefit from increased credibility to raise HNI/institutional capital. Driven by cost optimisation, we expect NAM to deliver an FY21-23E revenue/NOPLAT CAGRs of 15.5/24%. We raise our TP multiple to 38x Mar-23E EV/NOPLAT to build in the cyclical uptick in equity flows and maintain our ADD rating on the stock with an increased target price of INR415. The stock is currently trading at FY22E/23E EV/NOPLAT of 44.7/37.0 and P/E of 38.3/32.2x.

1QFY22 highlights: Revenue was marginally below the estimate at INR 3.02bn (+30%YoY). Revenue yields witnessed a sharp sequential decline of 2.5bps to 50.3bps despite the share of equity remaining stable in the mix. The SIP book was weak as NAM's SIP market share dipped by a further 135bps sequentially to 6.7%. Admin/operating costs were significantly lower than estimates on account of reduced mobility and the management's conscious attempts at cost rationalisation, resulting in a core operating profit of INR 1.7bn (two-year CAGR at 7.9%). Recovery in equity markets resulted in treasury gains of INR 670mn and drove APAT to INR 1.82bn (+16% YoY).

Con call key takeaways: The management attributed the following as primary reasons for pressure on yields: (1) shifting portfolio mix towards low- yielding ultra-short-term and low-duration schemes within the fixed income portfolio, (2) lower TERs in higher AUM slabs, and (3) higher trail on the new book. While it is looking to address its equity performance through diversification, most equity schemes are in the top two quartiles. Within debt funds, NAM saw inflows of INR 40bn, whereas the industry saw outflows of INR 15bn. It launched one ETF NFO in the quarter.

Shares of Nippon Life India Asset Management Ltd was last trading in BSE at Rs. 396.25 as compared to the previous close of Rs. 405.1. The total number of shares traded during the day was 294087 in over 5302 trades.

The stock hit an intraday high of Rs. 421.85 and intraday low of 388.4. The net turnover during the day was Rs. 119377945.

Source : Equity Bulls

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