Quarterly Update Q1FY23
Nippon Life India Asset | Quarterly Update
Nippon Life India Asset Management Ltd.
1st Aug 2022
BUY
CMP Rs. 282
TARGET Rs. 411 (+45.7%)
Company gains market share but at a cost of lower yield
Nippon Life India AMC (NAM) has outperformed the industry growth during
Q1FY23. NAM QAAUM grew by 16.3% YoY (-1.4% QoQ) vs. 13.8% YoY (-1.6%
QoQ) growth delivered by the industry, resulting in a market share gain of 16
Bps YoY, but AUM growth has come on the back of ETF and liquid AUM
growth, which are low yielding in nature, thus impacting NAM’s yield, which
has fallen by 7 Bps YoY (3 Bps QoQ).
Company Data
| MCAP (Rs. Mn) | 1,77,049 |
|---|---|
| O/S Shares (Mn) | 623 |
| 52w High/Low | 477 / 259 |
| Face Value (in Rs.) | 10 |
| Liquidity (3M) (Rs. Mn) |
173.6 |
Opex/QAAUM continues to remain under check
Opex/QAAUM increased by 1 bps to 19.5 Bps on a QoQ basis but still is below
FY22 levels (19.9 bps). Spike in operating cost is due to a hike given to
employees and normalization of business expenses which were suppressed
owing to covid led restrictions. Even management has increased spending on
marketing, and they plan to continue to spend on marketing as they are
getting better traction due to improvement in scheme performance.
Shareholding Pattern %
| Jun 22 | Mar 22 | Dec 21 | |
|---|---|---|---|
| Promoters | 73.7 | 73.8 | 73.8 |
| FIIs | 6.5 | 6.7 | 7.2 |
| DIIs | 9.2 | 8.8 | 8.4 |
| Non-Institutional | 10.5 | 10.7 | 10.7 |
Blended yield under pressure
NAM has witnessed higher flows towards ETF and liquid AUM during the
quarter, which are low-yielding categories, which has resulted in yields
dropping by 3 bps QoQ. Management expects pressure on yields to continue
for more time as its peers are focused on AUM gathering rather than
profitability.
NAM fortifying its presence in ETF
NAM has gained significant market share in the ETF segment, with market
share increasing from 13.2% in Q1FY22 to 14.1% in Q1FY23. ETF AUM is
among the fastest growing category for NAM, growing by 49.6% YoY
compared to overall AUM growth of 16.3%. NAM’s ETF remains the
category leader with the highest liquidity in the industry.
NAM vs Nifty
Source: Keynote Capitals Ltd.
Strong equity scheme performance, market share gain to follow with a lag
In the last one year, NAM’s equity scheme performance has improved
massively compared to its 3 and 5-year performance. An improvement in
scheme performance is normally followed by market share gain, but with a
lag. NAM has improved its market share in the ETF and liquid category, and
we expect that they will gain market share in equity category also.
Key Financial Data
| (Rs mn) | FY22 | FY23E | FY24E |
|---|---|---|---|
| Revenue | 13,066 | 14,816 | 16,765 |
| EBITDA | 7,902 | 9,046 | 10,357 |
| Net Profit | 7,434 | 9,122 | 10,196 |
| Total Assets | 37,965 | 39,200 | 40,336 |
| ROCE (%) | 24% | 26% | 28% |
| ROE (%) | 23% | 26% | 28% |
Source: Company, Keynote Capitals Ltd.
View & Valuation
We maintain our view on Nippon Life India Asset Management with a BUY
rating and a target of Rs. 411 (~28x FY23 earnings). At the current valuations
market is expecting NAM to lose market share or grow at slower pace than the
industry. Based on the enhancement in market share in the last few quarters
and a massive improvement in scheme performance we think NAM is at a
pivot point. Going ahead, we expect NAM to grow at least in line with the
industry. Given that NAM is trading at – 1 standard deviation of its trailing PE,
chances of re-rating are High, and the downside from current levels seems
limited.
Research Analyst
Supreme Industries Ltd. | Initiating Coverage Report
Q1FY23 Conference Call Takeaways
Yields
– Yields have declined on YoY and QoQ basis owing to growth in low-yielding
assets like Liquid and ETF.
– Redemptions of old high-yielding assets have gone down. Going forward,
impact on the yields will not be significant.
Other Income
– During the quarter, Other Income has turned negative due to mark-tomarket (M2M) losses. The Company has almost Rs. 2.5 Bn exposure to
equity and market has fallen by 12-15% in last 3 months (Apr-Jun’22). Also,
10-Yr G-sec increased by 50 bps in Q1, leading to M2M losses in the Debt
portfolio.
– NAM has 70% of its debt portfolio at the shorter end of the duration curve.
Mutual Fund AUM
– MF QAAUM increased by 16.3% YoY (-1.4 QoQ), driven by growth in
Equity/ETF/Liquid AUM by 17.9% YoY (-1.5% QoQ), 49.6% YoY (7.7% QoQ)
and 24.7% YoY (9.5% QoQ) respectively.
– Debt AUM has de-grown by -13.3% YoY (-16.4% QoQ).
– As of June 2022, no category of fund manager has more than 16% of total
assets. The majority of the funds are jointly managed, and no individual
fund manager manages more than 23% of equity AUM, and that too is
spread across funds which have other co-fund managers.
– Q1 MF QAAUM market share is at 7.4%, up 16 bps YoY. NAM has 13 million
unique investors, up 76% YoY. NAM’s share of the industry’s investors is at
37% (vs. 31% as of June 2021).
– NAM’s Q1 systematic flows at Rs. 22.8 Bn, up 30% YoY. SIP accounts
continuing for more than 5 years is at 13% vs. 9% for the industry.
– Share of ETF volumes on NSE & BSE is at ~74%.
Employee and Operating Expenses
– Employee cost increased by 12.1% YoY. It has increased primarily by hike
given to employees which were not given in last 2 years.
– As the economy opens up, certain expenses have normalized, and certain
marketing activities were carried out. Management will continue with
marketing activities as they are seeing good traction due to improvement
in scheme performance.
Distribution
– During the quarter, NAM added 1200 mutual fund distributors, totaling to
~85,300. NAM has a presence across 275 locations pan India which is
among the highest in the industry
– Digital channel contributed 55% of total new purchase transactions
Nippon Life India Asset | Quarterly Update
Q1FY23 Result Update
Nippon Life India Asset | Quarterly Update
Supreme Industries Ltd. | Quarterly Update Report
Valuation
4-Year Trailing PE – NAM is trading at – Standard Deviation of its historical range
Nippon Life India Asset | Quarterly Update
Rating Methodology
| Rating | Criteria |
|---|---|
| BUY | Expected positive return of > 10% over 1-year horizon |
| Neutral | Expected positive return of > 0% to < 10% over 1-year horizon |
| REDUCE | Expected return of < 0% to -10% over 1-year horizon |
| SELL | Expected to fall by >10% over 1-year horizon |
| NOT RATED (NR)/UNDER REVIEW (UR)/COVERAGE SUSPENDED (CS) | Not covered by Keynote Capitals Ltd/Rating & Fair value under Review/Keynote Capitals Ltd has suspended coverage |
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Nippon Life India Asset | Quarterly Update
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Nippon Life India Asset | Quarterly Update
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