Q2FY24 Review: HDFC AMC: Sequential yield improvement drives PAT beat

13 Oct 2023 , 12:16 PM

HDFCAMC reported strong Q2 performance with 20% YoY PAT growth – 6% above estimates. Increasing share of equity in total AUM drove positive surprise in gross yields (+2.5% QoQ to 48.6bps). The company gains further market share in the active equity segment (+88bps YoY to 12.7%), driving total AUM growth (+22% YoY to Rs5.2trn). Abating regulatory risk, moderating competition intensity on distributor payouts and tailwind for market-share gains augur well for HDFCAMC earnings. Reiterate BUY and raise analysts of IIFL Capital Services TP to Rs3,050, as analysts of IIFL Capital Services roll over to FY26 EPS. 

Higher yields drive beat: 

HDFCAMC’s Q2FY24 PAT grew 20% YoY to Rs4.37bn driven by 22% YoY growth in QAAUM to Rs5.2trn. PAT is 6% above estimates, owing to better than expected yields. Active equity AUM grew faster than total AUM, resulting in the share of high-margin equity increasing by 570bps YoY and 340bps QoQ to 57.6% (industry is at ~52%), cushioning yield compression. Blended yield declined by 3.4% YoY, but was up 2.5% QoQ to 48.6bps. Also, HDFCAMC’s equity AUM is growing faster than the industry, aided by the strong underlying fund performance, leading to market-share gains (up 88bps YoY to 12.7%). On total AUM, market-share gains look muted (+16bps YoY to 11.2%), due to weak growth in liquid AUM. 

Distributor payouts normalising; tailwinds from HDFC Bank distribution: 

HDFCAMC management alluded that competition intensity in distributor payouts is moderating; the net AMC yields on new NFOs (90-100bps) have improved over the last three to four quarters. As such, flow margins are lower than the book margins, given the telescopic pricing. On the wallet share of HDFC Bank AUM – the company remains confident that this will improve and be closer to peers (50-70%). The company has also set up a dedicated team to service HDFC Bank customers, so as to garner a higher wallet share. Currently, HDFCAMC has a share of 25-30% in HDFC Bank AUM book; however, the marketshare in the flows is higher. 

Regulatory risk abates; maintain BUY: 

The Company shared that on the draft TER proposal, the industry represented that scale benefits were being passed on the investors. So as of now, status quo is maintained. With the moderating regulatory risk and high likelihood of continuance of MS gains (strong fund performance + higher wallet share in HDFC Bank AUM), analysts of IIFL Capital Services expect further re-rating.