Q3 review: Listed AMCs on strong wicket but most positives factored in

Brokerages are a divided house when it comes to the stock price outlook for asset management companies (AMCs). While the recent strong business performance and long runway for growth provide key tailwinds but elevated valuations potentially cap further upside.

The two of the largest listed players —  HDFC AMC and Nippon India AMC (NAM) —  have delivered profits growing at over 20 per cent in each of the first three quarters in the financial year 2024. The profit growth was similar in the case of other two listed AMCs Aditya Birla Sun Life (ABSL) and UTI as well, except for the September quarter, when their profits declined.

The companies are likely to remain on the growth path in the coming quarters too, say brokerages.

However, most of them believe that this optimism is already priced in and hence there is little scope for further run up, at least in the case of the two larger AMCs.

In the calendar year 2023, HDFC AMC's stock price surged nearly 47 per cent. In the case of NAM, the growth was even higher at 79 per cent. Currently, they are trading at a price-to-earnings (PE) ratio of 41.2 and 28.6, respectively—higher than their five-year average of 35.9 and 27.4, shows Bloomberg data.

"NAM is currently trading at about 24x September 2025 estimated earnings. With the revival in healthy AUM growth maintained and continuous increase in market share from the last three quarters, we have revised our AUM and revenue growth estimates upwards as well as modelled in higher multiple," said Axis Securities, which has a 'buy' call on NAM with a target price of Rs 585, up from its previous target of Rs 430.

BOB Capital, which has a 'hold' rating on HDFC AMC, has raised the target price of HDFC AMC by assigning a higher PE multiple.

"Our multiple upgrade stems from a gradual recouping of overall market share, improved equity scheme performance and above-expected profitability. However, compression in liquid and debt AUM market share and lower originations from the parent remain concerns. Valuations too look high after a 30 per cent stock rally since the end of September vs. 10 per cent for the index," it said in a note.

The only issue, as per brokerages, has been the pressure on yields due to the growing size of equity schemes. 

Mutual fund schemes are subject to the telescopic pricing formula defined by the Sebi slab, wherein MFs have to bring down their charges as and when the fund size breaches the various slabs. 

However, with the weight of equity schemes growing in the asset mix at the expense of debt, the decline in yields has largely been cushioned in the recent quarters.

According to brokerages, ABSL and UTI continue to witness market share decline.

Brokerages that have a 'Buy' rating expect AMCs to remain on the high growth path, considering the mutual fund industry tailwinds and long runway for growth.

"Mutual fund AUM in India has recorded a CAGR of 16.4 per cent over the past five years, with equity AUM witnessing a CAGR of 23.5 per cent.

The mutual fund industry benefits from a range of tailwinds, such as the increasing importance of financial savings among Indian households, the under-penetration of MFs, growing investor awareness and education, robust distribution platforms, and the accessibility of transactions through digitisation," said KR Choksey.