Q3FY24 Review: HDFC Asset Mgmt. Co.: Strong performance; Equity led growth

12 Jan 2024 , 12:16 PM

HDFCAMC Q3FY24 PAT grew 33% YoY, 9% ahead of estimates. The beat was due to higher treasury and lower tax; as such, operational performance was in-line. HDFCAMC’s equity AUM grew 40% YoY vs 29% YoY for industry – resultantly, its market share increased by 90bps YoY to 12.9%. After a sharp run-up in last 12 months, stock is now trading at 38x FY25 EPS – 6% higher than its long-term average. Analysts of IIFL Capital Services upgrade FY24-26 EPS by 4-8% and value the stock at 35x FY26 EPS. Given limited re-rating potential from here on, they expect stock to consolidate at current levels. However, analysts of IIFL Capital Services maintain their positive stance given market-share gains backed by good fund performance and potential for higher share in the HDFC Bank AUM. 

Operationally in-line; PAT beat on treasury, tax: 

HDFCAMC’s Q3FY24 PAT grew 33% YoY to Rs4.9bn – 9% ahead of estimates. The beat is owing to sharp increase in treasury income (+38% YoY and +17% QoQ) and lower effective tax rate (23.3% vs 26% YoY/QoQ). As such, operational performance was strong and in line with estimates. Revenues grew by 20% YoY to Rs6.7bn, driven by 24% YoY growth in QAAUM to Rs5.5trn; partly offset by 3% YoY moderation in yield to 48.4bps. The AUM growth is driven by more profitable Equity segment – Equity AUM is up 40% YoY to Rs3.3trn; its share has increased by 680bps YoY to 60.6%. PAT yield is up 7% YoY to 35.3bps. 

Equity market-share continues to improve: 

Although the overall market share (MS) has seen a marginal improvement of 20bps YoY to 11.2%, MS in the Equity segment was up 90bps YoY to 12.9%. The company shared that this is on the back of good fund performance (80% of its equity AUM is in top-2 quartiles) and its schemes are in the recommendation list of all large distributors. With the increase in equity AUM, the yield has declined to 63bps in Q3 vs 67bps QoQ (3 schemes have moved to lower TER slabs in Q3). Although the share of HDFC Bank in the total Equity AUM is down 70bps YoY to 7.7%, management shared that this is because the other channels are growing faster. As such, HDFCAMC’s market-share in flows is higher than HDFC Bank book AUM. 

Upgrade estimates; maintain BUY: 

Analysts of IIFL Capital Services note that HDFCAMC’s EOP Equity AUM is 10% higher than Q3 avg – this would ensure strong AUM growth even in Q4. Analysts of IIFL Capital Services upgrade their FY24-26 EPS by 4-8% to account for growth in equity AUM. They value the stock at 35x FY26 EPS (in-line with long term average) and raise their TP to Rs3,700. Analysts of IIFL Capital Services maintain BUY.