How AMCs repositioning themselves for new normal? Check target price for Aditya Birla, UTI and Nippon Life

The asset management companies (AMCs) are repositioning themselves for the new normal, as per domestic brokerage firm Kotak Institutional Equities as it believes the sector valuations have largely priced in the impact of negative regulatory norms.

Given the possible cyclical slowdown in flows, Kotak Institutional is of the view that incremental value creation will be a function of company-specific growth or margin levers for AMCs.

The in-depth examination of fund performance and distribution models also gives the brokerage confidence in the relevance of active fund management. Similarly, the attraction of AMC businesses, historically, has rested on: high-profit margins; fast growth, and low capital intensity, it added.

Kotak frame its views on AMCs businesses on three vectors: Active fund performance; distribution strength measured as the support of bank affiliates, penetration in B-30 locations (locations beyond the top 30 and SIP share; and product profile to consider active fund mix.

Kotak Views On AMC Stocks

Aditya Birla AMC: ADD – Target: Rs 480, Upside: 6% – Headwinds ahead.

Aditya Birla Sun Life AMC’s long-term track record, geographical penetration and large SIP book are its key strengths, but near and midterm challenges are in three-fold: weak fund performance, higher debt share is a growth drag, and the passive positioning remains weak versus peers so far.

Shares of Aditya Birla Sun Life AMC on Tuesday closed nearly 1 per cent higher to Rs 455.5 per share on the NSE.

HDFC AMC: REDUCE – Target: Rs 2,150, Downside: 4% – Well-rounded franchise, fairly priced.

It has a superlative fund performance and potential upside from the underleveraged captive bank channel add to the strengths of a strong brand, distribution and retail SIP book. However, current valuations imply return generation will need a greater valuation premium than peers.

Shares of HDFC AMC on Tuesday closed flat with a positive bias to Rs 2,243.10 per share on the NSE.

Nippon Life India AMC: ADD – Target: Rs 300, Upside: 12% – Strong and stable.

Except for a captive distribution, Nippon ticks most right boxes. It has excellent fund performance, diversified/deep distribution, and a relatively strong passive product profile. The brokerage like the franchise but finds valuations to be quite fair.

Shares of Nippon Life India AMC on Tuesday closed flat with a positive bias to Rs 269.95 per share on the NSE.

UTI AMC: BUY – Target: Rs 940, Upside: 21% – Self-help candidate, attractively priced.

The brokerage believes UTI offers the best risk-reward in the space, given the healthy fund performance on 3-year/5-year, strong reach (high B-30 share) and maximum visibility among peers to control costs, given the already high base.

Shares of UTI AMC on Tuesday closed over 0.5 per cent higher to Rs 770.75 per share on the NSE.