MF industry can grow in double digits in medium-to-long term; Equirus Securities initiates coverage on these 3 AMC stocks with 'long' rating

Equirus Securities has initiated coverage on three AMCs (asset management companies) — Aditya Birla SunLife AMC, HDFC AMC and Nippon Life India AMC — with a long rating. 

It believes that India’s mutual fund AUM can grow in double digits driven by multiple tailwinds, such as an increase in financialization of household savings, under-penetration of MFs and investors shifting towards the capital market for consistent and higher returns. 

The brokerage is of the view that mutual funds will be key beneficiaries of increased risk appetite among retail investors and their rise in equity participation would aid profitability.  

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"We expect the overall MF industry to grow in double digits over the medium-to-long term led by health flows due to the financialization of savings, rising investor awareness, higher return than trading forms of investment, and MTM gains," it said.  

Leading AMCs are likely to be key beneficiaries of this trend among investors.  

HDFC AMC | Target Price: Rs 2,535 

HDFC AMC is India’s third largest AMC with an 11.7% market share (based on QAAUM) as of Dec’21. Given its strong brand image and stable normalized returns across cycles, HDFC AMC has created trust among investors, especially individuals. The  company  has  a  strong  network  of  70,000+  distributors  along  with  227  branches,  of which 149 are in B-30 cities.  

The brokerage initiated a long rating with a target price of Rs 2535, which translates into an upside of over 18% on March 31 closing price of the stock at Rs 2146 per share on the BSE.  

"The stock has been under pressure due to market share losses –an issue which should be addressed with performance improvements and other steps taken by HDFC AMC. Initiate coverage with LONG rating and Mar’23 TP of Rs 2,535set at 30x FY24E EPS," said the brokerage.  

Aditya Birla Sun Life AMC | Target Price: Rs 640 

The brokerage initiated coverage on India’s fourth largest non-bank AMC Aditya Birla Sun Life AMC with a target price of Rs 640, which is over 20% higher on Rs 533, the closing price of the stock recorded on Thursday. 

"We see revenue yields remaining broadly stable, in the range of 44-45bps over FY22E-FY24E. RoEs are likely to remain strong above 30%.Since its listing in Oct’21, the stock has corrected by more than 25% and is currently trading at 17.1x FY24E EPS, lower than its listed peers. Initiate coverage with a Mar’23 TP of Rs 640," said Equirus Securities.  

Nippon Life AMC | Target Price: Rs 425 

At target price of Rs 425, Equirus Securities sees an upside of 22% in this AMC stock on March 31 closing price of Rs 348 per share on the BSE.  

Fifth largest and second largest non-bank AMC with a 7.3% market share (on MAAUM basis) as of Feb’22-end, The company enjoys leadership in passive funds with a disproportionately high market share of ~60% in ETF folios and 69% in ETF volumes on the NSE and BSE.  

As of Dec’21, NAM had a 13% AUM market share in the passive funds. We have modelled for an ~18% revenue CAGR between FY21-FY24E driven by a 21.6% CAGR in MF AUM. Given opex leverage, we expect FY23E/FY24E RoE to improve to 25.3%/27.2% from 23.9% in FY21.We initiate with LONG rating on the stock and Mar’23 TP of Rs 425 set at ~27x FY24E EP," it said.  

Concerns and key risks 

The Indian MF industry, which started in 1963 with the formation of Unit Trust of India, has grown at a rapid pace with Private sector funds entering the industry in 1993. However, India’s MF AUM as a percentage of GDP grew from 4.3% in FY02 to ~15% in FY21, but is way below the world average of 63%. It is also lower than many developed economies such as the US (120%), Canada (81%), France (80%) and the UK (67%) and key emerging economies such as Brazil (68%) and South Africa (48%).  

Any slowdown in AUM growth, scheme underperformance and regulatory risks can pose remain big concerns from the industry's growth point of view.   

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)