Listed asset management companies see subdued profit growth in Q2

Listed asset management companies (AMCs) reported muted growth in profitability in the July-September quarter of 2022-23 (FY23). The growth comes despite multiple headwinds, such as poor equity market performance, outflows from debt funds, and rise in expenditure.

Growth in profit was by virtue of strong inflows into equity funds, surge in investment income, and rising revenue from non-mutual funds (MF).

Aditya Birla Sun Life AMC recorded the highest growth in net profit among listed AMCs as non-operating income rose 90 per cent year-on-year. The AMC reported a net profit of Rs 191 crore for the September quarter, up 11 per cent from the corresponding period of the previous financial year (2021-22, or FY22).

In the case of HDFC AMC and UTI AMC, net profit rose 6 per cent and 1 per cent, respectively. Nippon India AMC’s net declined 4 per cent.

Analysts expect profits to remain under pressure in the near term on account of higher costs and indolent growth in assets under management (AUM). They expect growth to pick up pace in 2023-24 (FY24).

“We cut our FY23 through 2024-25 (FY25) profit forecasts (for HDFC AMC) by around 2 per cent as we see slower growth in AUM and slightly higher costs. We project a 14 per cent profit compound annual growth rate (CAGR) in FY22-25,” Jefferies said in a report.

The brokerage has slashed the FY25 profit forecast for Nippon India AMC by 1-4 per cent, saying it expects profits to grow at 9 per cent CAGR over FY22-25. Jefferies has maintained a ‘buy’ call on both companies. Equirus Research has raised revenue estimates for the two AMCs.

According to the brokerage, HDFC AMC and Nippon India AMC may see higher revenues in the coming quarters due to rising share of equities in the asset mix and expectations of higher net inflows on the back of improving performance of some of their schemes.

The brokerage has set a March 2024 target of Rs 2,470 for HDFC AMC and Rs 400 for Nippon India AMC. UTI AMC is in better shape weighed against its peers. It has more levers for earnings growth, according to ICICI Securities.

“We continue to prefer UTI AMC among listed AMCs on the back of attractive valuations (FY24 core price-to-earnings at 13.4x) and more levers than peers for earnings growth. Cost improvement (Rs 15 crore net lower employee costs expected over FY23-24) and diversified source of revenue (20 per cent of FY22 total revenue came outside MF business) continue to remain the two unique earnings drivers,” the brokerage said in its report.