Q2FY24 Review: Aditya Birla SL AMC: Market share loss weighs on valuations

30 Oct 2023 , 12:46 PM

ABSLAMC Q2FY24 PAT declined by 7% YoY to Rs1.77bn, marginally ahead of estimates (3% beat) owing to better than expected yields. AUM growth lags industry growth and thus company continue to lose market-share in equity as well as overall basis. Mgmt. have taken concrete steps to arrest market share loss; however turnaround in fund performance is key (45-60% of AUM underperformed the benchmark over 3M-3Yr). At 17x FY25 EPS, the stock trades inexpensively and is at 45% discount to HDFCAMC. 

Subdued quarter; market-share loss continues: 

ABSLAMC’s Q2FY24 profits declined by 7% YoY and 3% QoQ to Rs1.77bn, marginally ahead of estimates. Although revenues grew by 8% YoY driven by 10% AUM growth to Rs3.1trn partly offset by 3% YoY decline in yield to 41bps; profits declined owing to i) higher cost-to-income ratio (up 130bps YoY to 42.2%), and ii) lower treasury income (down 28% YoY). On a sequential basis, revenue growth was supported by expansion in blended yield (+2%) as share of equity AUM (70bps yield) increased by 200bps to 42%. Given the weak equity fund performance, company continue to lose market-share – down 80bps YoY and 10bps QoQ to 5.2%. On overall basis, its marketshare declined by 60bps YoY and 30bps QoQ to 6.6%. 

Focus on arresting market share loss; new product launches: 

Mgmt. shared AMC have taken concrete steps to improve fund performance and have given additional fund management responsibility to senior Analysts. Further, Harish Krishnan has been appointed as the co-CIO, he joins from Kotak MF and has >2 decades of fund management experience. In addition, company is also launching new schemes to drive AUM growth –Transport and Logistics Fund and US Treasury ETF. Further, new products are also launched in alternatives space – CAT 2&3 in AIF and Global Emerging Market fund and ABSL Index fund in offshore market. On distribution, company shared that traction in the fintech and direct channels is better than other traditional modes; although assets continue to grow all across. 

Trades inexpensively:

Analysts of IIFL Capital Services estimate ABSLAMC’s earnings to grow by 11% pa over FY23-26 – in base case they assume slower than industry AUM growth. At CMP, the stock trades inexpensively at 17x FY25 EPS – 45% discount to HDFCAMC. They value it at 18x 2YF EPS and maintain ADD.