INSTITUTIONAL EQUITY RESEARCH

HDFC Asset Management (HDFCAMC IN)

Strong operating performance
12 October 2023
INDIA | AMC | Quarterly Update

HDFCAMC’s QAAUM grew 22% yoy (+8% qoq) driven by strong market movement and Neutral (Maintain)
inflows. Core PBT growth was also robust at 20% (+13% qoq), impacted by revenue yield CMP RS 2,743
qoq expansion of 1.7bps (-1.7bps yoy). Market share trends remained strong, owing to TARGET RS 2750 (+0%)
strong fund performance and HDFCAMC have started to gain flow market share across
channels. Equity and SIP market share improved 30bps/110bps respectively during the COMPANY DATA
quarter. While we remain positive on the long-term growth opportunity in the AMC space, O/S SHARES (MN) : 213
current price market is discounting AUM growth CAGR of c.15% over next 10 years, leaving MARKET CAP (RSBN) : 587
little upside. We maintain Neutral rating with a PT of Rs 2,750. MARKET CAP (USDBN) : 7.1
52 - WK HI/LO (RS) : 2,800 / 1,590
LIQUIDITY 3M (USDMN) : 26
Top takeaways from Q2FY24 PAR VALUE (RS) : 5
• HDFCAMC Q2FY24 operating revenue grew 18% yoy/12% qoq to Rs 6.4bn. QAAUM grew 22%
yoy (+8% yoy), Revenue growth was supported by higher yield (+1.7bps qoq) at 49bps. SHARE HOLDING PATTERN, %
Proportion of Equity AUM increased to 58% (1Q24: 54%; 4Q23: 54%) Sep 23 Jun 23 Mar 23
PROMOTERS 52.6 52.6 62.8
• Op expense was up 13% yoy as higher other expense (+19% yoy). Employee expenses DII 22.3 22.3 17.6
increased 11% qoq due to ESOP costs and addition of manpower in distribution FII 13.0 13.0 7.5
• Core PBT grew 20% yoy (+13% qoq) to Rs 4.67bn. Reported PAT however grew 20% yoy on. OTHERS 12.2 12.2 12.1

KEY FINANCIALS
Management comments / concall takeaways:
Rs mn FY23E FY24E FY25E
• Revenue Yield: Yield improved on higher contribution of Equity in the AUM mix, this was Net Profit (Rs bn) 14.2 17.9 20.8
however offset by TER cut in few larger schemes where AUM crossed threshold, Incremental % growth 2% 26% 16%
flows are coming at lower yields (50-60bps) vs Book yield of 67-68 bps (c.70 bps in 4Q23) EPS (Rs) 67 84 98
• Debt Funds: Debt fund provides significant opportunity and as Industry MFs needs to do a lot DPS (Rs) 48 60 70
ROE (%) 24.5% 28.1% 30.0%
to explore the opportunity. HDFCAMC has gained market share in Debt side on sequential P/E (x) 37 33 28
basis Industry has witnessed inflows into Debt funds, however towards shorter end of the Div Yield 1.9% 2.2% 2.6%
curve. As interest rate cycle start to reverse, expect money to move towards longer end.
CHANGE IN ESTIMATES
• Operating Expense: Higher operating expenses were on account of general business expenses
_Revised Est. _ _% Revision_
and Technology related cost. ESOPs charges during the quarter was Rs 113 mn.
Rs bn FY24E FY25E FY24E FY25E
• HDFC Bank: HDFCAMC is working closely with Bank to increase market share in flow side. They AUM 5,589 6,498 4.8% 4.9%
have also created a separate team for the bank and expect to gain market share. Core Rev 25.6 31.0 3.3% 6.1%
Core PBT 18.8 22.9 3.2% 6.6%
Core PAT 14.1 17.2 2.8% 6.8%
Outlook and valuation: Market share trends have been encouraging, Strong brand equity and
Core EPS (Rs) 66.1 80.7 3.1% 6.8%
a well‐diversified distribution channel should continue to help HDFCAMC to capture the long‐
term growth opportunity in India’s mutual fund industry. However, as revenue yield continue Sujal Kumar, Research Analyst
to remain under pressure, we believe operating leverage benefit will be limited. We increase Manish Agarwalla, Research Analyst
our earnings estimate by 3%/7% for FY24/FY25 as we adjust AUM estimate for MTM gains in
1HFY24. At current price, stock trades at a P/E of 33x/28x on FY24/FY25 earnings; We believe
at current price, market is factoring AUM CAGR of c.15% for 10 years and hence see limited
upside from here. Maintain NEUTRAL with a TP of Rs 2750, valuing it at 28x FY25 earnings

(Rs mn) Q2FY24 Q2FY23 yoy % Q1FY23 qoq % vs. expect. Comments
Revenue from Operation 6,431 5,447 18% 5,745 12% 3% Revenue yield improved 1.7bps qoq to 49.0bps
Other Income 1,221 1,042 17% 1,580 -23% 16%
Total Revenue 7,652 6,489 18% 7,326 4% 5%
Operating expense (incl depreciation) 1,761 1,558 13% 1,612 9% 3% Employee expense includes Rs 131mn ESOPs cost
EBITDA 6,044 5,088 19% 5,866 3% 6% Other expense was higher qoq on business and Tech
EBITDA Margin 79% 78% 1% 80% -1% 0% related cost
Core PBT 4,670 3,889 20% 4,133 13% 4%
PAT 4,376 3,641 20% 4,775 -8% 5%
QAAUM (Rs bn) 5,247 4,293 22% 4,857 8% 1% Equity funds accounts 58% of AUM vs 50% in 4Q23
Equity / Total AUM (qtrly avg) 57.6% 51.9% 5.7% 54.2% 3.4% 0% Equity AUM grew 15% qoq on QAAUM basis
Op revenue/Avg AUM (bps) 49.0 50.8 -1.7 47.3 1.7 1
PAT / Avg AUM (bps) 33 34 -1 39 -6 1
EPS (INR) 20.6 17.1 20% 22.5 -8% 5%

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Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research
is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt
Securities Inc, an SEC registered and FINRA-member broker-dealer.
 HDFC ASSET MANAGEMENT QUARTERLY UPDATE

Results update (Rs bn)

Operating Result Q2FY24 Q2FY23 yoy growth Q1FY24 qoq growth
Total Revenue from Operation 6,431 5,447 18% 5,745 12%
Other Income 1,221 1,042 17% 1,580 -23%
Total Revenue 7,652 6,489 18% 7,326 4%
Employee Expense 929 839 11% 838 11%
Fees and Commission Expenses 4 11 -64% 10 -62%
Other Expense 675 552 22% 612 10%
Total Operating expense 1,608 1,402 15% 1,460 10%
EBITDA 6,044 5,088 19% 5,866 3%
D&A 130 132 -2% 129 1%
Finance Cost 23 24 -7% 23 -3%
PBT 5,891 4,931 19% 5,714 3%
PAT 4,376 3,641 20% 4,775 -8%
EPS (Rs) 20.6 17.1 20% 22.5 -8%

As a % of Avg AUM (bps annualized)

Total Revenue 58.3 60.5 -2.1 60.3 -2.0
Employee Expense 7.1 7.8 -0.7 6.9 0.2
Fees and Commission Expenses 0.0 0.1 -0.1 0.1 -0.1
Other Expense 5.1 5.1 0.0 5.0 0.1
EBITDA 46.1 47.4 -1.3 48.3 -2.2
PBT 44.9 45.9 -1.0 47.1 -2.1
PAT 33.4 33.9 -0.6 39.3 -6.0
Source: Company, PhillipCapital India Research

QAUM Breakup Q2FY23 Q3FY23 Q4FY23 Q1FY24 Q2FY24 QOQ YOY

Equity 51.9% 53.8% 54.4% 54.2% 57.6% 3.4% 5.7%
Debt 28.0% 26.2% 26.2% 26.7% 26.1% -0.6% -1.9%
Liquid 17.3% 17.1% 16.2% 15.9% 13.1% -2.8% -4.2%
Others 2.9% 2.9% 3.2% 3.2% 3.2% 0.0% 0.3%

QAUM Breakup (Rs bn) Q2FY23 Q3FY23 Q4FY23 Q1FY24 Q2FY24 QOQ YOY
Equity 2,228 2,393 2,447 2,632 3,022 15% 36%
Debt 1,202 1,165 1,178 1,297 1,369 6% 14%
Liquid 743 761 729 772 687 -11% -7%
Others 124 129 144 155 168 8% 35%

Coverage Universe Valuation

Company Size FY25 PE Reco/Upside
HDFC AMC M 28 Neutral 0%
Nippon Life AMC M 22 BUY -2%
Note: L/M/S = Large/Mid/Small Cap. Source: Company, PhillipCapital India Research

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 HDFC ASSET MANAGEMENT QUARTERLY UPDATE

Financials
Assets under management Valuation Ratios
Y/E Mar, Rs bn FY22 FY23 FY24e FY25e FY22 FY23 FY24e FY25e
Mutual Fund 3,984 4,349 5,563 6,472 Earnings and Valuation Ratios
PMS 92 27 26 26 RoE (%) 27% 24% 28% 30%
Total AUM 4,076 4,376 5,589 6,498 EPS (Rs.) 65 67 84 98
Source: Company, PhillipCapital India Research Estimates Dividend per share (Rs.) 42 48 60 70
Book Value (Rs.) 276 307 330 358
Assets under management by asset class Dividend Payout Ratio (%) 64% 72% 71% 72%
P/E 38.2 41.0 32.6 28.1
Y/E Mar, Rs bn FY22 FY23 FY24e FY25e
P/B 9.0 8.9 8.3 7.7
Equity 1,797 2,282 3,254 3,967
Price/AUM 13% 13% 10% 9%
Debt 1,426 1,206 1,398 1,411
Dividend Yield (%) 1.7% 1.7% 2.2% 2.6%
Liquid 651 731 726 815
Others 109 130 185 278
Total AUM 3,983 4,349 5,563 6,472 Operating Ratio
As a % of avg AUM FY22 FY23 FY24e FY25e
Source: Company, PhillipCapital India Research Estimates
Management Fee/Avg AUM 48.5 49.7 48.7 48.5
PMS and Advisory/Avg AUM 0.3 0.1 0.1 0.0
Income Statement Core revenue/Avg AUM 48.8 49.8 48.8 48.5
Y/E Mar, Rs mn FY22 FY23 FY24e FY25e Other Revenue/Avg AUM 7.3 7.3 8.5 7.0
Investment Management Fee 21,032 21,608 25,602 30,949 Total Revenue/Avg AUM 56.1 57.1 57.3 55.6
PMS and Advisory 121 60 27 26 Staff cost /Avg AUM 7.8 7.4 7.0 7.0
Other Income 3,178 3,158 4,473 4,473 Other expense/Avg AUM 6.1 6.9 6.4 6.0
Total Revenue 24,332 24,826 30,101 35,449 PBT/Avg AUM 42.2 42.8 43.9 42.6
PAT/Avg AUM 32.1 32.7 34.0 32.5
Employee Expense 3,122 3,127 3,502 4,213
Brokerage and commission Exp 54 37 21 36
Other Expense 2,065 2,425 2,812 3,282 As a % of avg Asset FY22 FY23 FY24e FY25e
Management Fee/Avg Asset 38% 35% 38% 42%
Depreciation and Amortization 539 533 518 518
PMS and Advisory/Avg Asset 0% 0% 0% 0%
Total Expense 5,779 6,122 6,854 8,050 Core revenue/Avg Asset 39% 35% 38% 42%
Profit Before Tax 18,553 18,704 23,247 27,399 Other Revenue/Avg Asset 6% 5% 7% 6%
Tax 4,622 4,467 5,365 6,649 Total Revenue/Avg Asset 44% 40% 44% 48%
Net Profit 13,931 14,237 17,883 20,750 Staff cost /Avg Asset 6% 5% 5% 6%
Other expense/Avg Asset 5% 5% 5% 5%
PBT/Avg Asset 34% 30% 34% 37%
Balance Sheet RoA 25% 23% 26% 28%
Y/E Mar, Rs bn FY22 FY23 FY24e FY25e Leverage 1.1 1.1 1.1 1.1
Share Capital 1,066 1,067 1,067 1,067 RoE 27% 24% 28% 30%
Reserves and Surplus 54,234 60,017 65,132 70,986
Total 55,300 61,084 66,199 72,053 Growth Ratio FY22 FY23 FY24e FY25e
Financial Liabilities 2,189 2,419 2,178 2,259 Avg AUM (%) 12.9% 0.2% 20.9% 21.4%
Non-Financial Liabilities 1315 1863 1863 1863 Asset (%) 15.4% 11.2% 7.5% 8.5%
Total Liability + Equity 58,804 65,365 70,239 76,174 Networth (%) 15.8% 10.5% 8.4% 8.8%
Management fee (%) 14.3% 2.7% 18.5% 20.9%
Assets PMS & Advisory Fee (%) -6.9% -50.3% -55.7% -1.1%
Non-Financial Assets 1,968.2 2,258.5 3,304.1 3,177.8 Staff Cost (%) 37.7% 0.2% 12.0% 20.3%
Investments 55,702 60,792 65,762 71,688 Operating Expenses (%) 17.5% 12.7% 11.9% 14.5%
Other financial assets 1,135 2,315 1,172 1,309 Core EBITDA (%) 9.3% 1.1% 19.8% 21.4%
Total Assets 58,806 65,365 70,239 76,174 Core profit (%) 9.8% 1.1% 20.8% 22.1%
Source: Company, PhillipCapital India Research Estimates

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 HDFC ASSET MANAGEMENT QUARTERLY UPDATE

Stock Price, Price Target and Rating History

3500

B (T 3500)
3000
B (T 3200)

2500 N (T 2750)
B (T 3000)

2000 B (T 2800)
B (T 2300) B (T 2300)
B (T 2300)
B (T 21000)

1500

1000

500

0
M-21 A-21 N-21 F-22 M-22 J-22 O-22 J-23 B (T 21000) J-23

Rating Methodology
We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one
year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation
stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks

Rating Criteria Definition
BUY >= +10% Target price is equal to or more than 10% of current market price
NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%
SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks

Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%
SELL <= -15% Target price is less than or equal to -15%.

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Page | 5 | PHILLIPCAPITAL INDIA RESEARCH

 HDFC ASSET MANAGEMENT QUARTERLY UPDATE

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postalCode=400013, st=Maharashtra,

KUMAR
serialNumber=587BC1F6CECEBB78710834
4240AB99BCF67877A7690C00680A7F113
C3917D423, cn=SUJAL KUMAR
Date: 2023.10.12 21:34:07 +05'30'

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