UTI Asset Management share price II HDFC Securities retains buy rating with price target of Rs 650

While UTI Asset Management equity performance and market share have improved, high staff costs continue to pose a significant challenge to core profitability. UTI Asset Management does expect employee costs reduction (to 20.2bps of AAUM in FY23E vs. 25.8bps in FY21E) as a result of natural retirements. AUM growth and cost rationalisation are expected to drive near term performance and HDFC Securities expects the company to deliver an FY21-23E revenue/NOPLAT CAGR of 10.3/32.5%. HDFC Securities retains a BUY with a DCF-derived target price of Rs 650 (10% execution discount to DCF), valuing the stock at 27.5x Sep-22E NOPLAT + Sep-21E cash and investments. UTI Asset Management is currently trading at FY22E/23E EV/NOPLAT of 18.1/14.0 and P/E of 20.0/17.1x.
 
UTI Asset Management Q3 FY21 highlights: 
 
Revenue at Rs 2.12 bn (+6.9%/+6.3% YoY/QoQ) was in line with estimates. Net outflows in equity schemes were Rs 18 bn (market share of 4.3%) as tenure of two close-ended focused funds expired in 3QFY21. The core operating profit at Rs 477 mn (-35.3/-29.3% YoY/QoQ) was 37.9% below estimates, mainly as a result of high employee costs (+53.5/27.5% YoY/QoQ), which in turn were due to (1) ESOP expenses (Rs 73 mn) (2) increased variable pay in QQ, and (3) impact of non-managerial settlement payment of Rs 120 mn in Mar-20. Higher-than-estimated treasury income of Rs 1.32bn (+198.3/67.3% YoY/QoQ) drove APAT to Rs 1.40 bn (+66.7/18.3% YoY/QoQ). HDFC Securities have adjusted their FY21E estimates, mainly to build in higher other income. 

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For the fixed income segment, UTI Asset Management has hired three new credit analysts to boost performance. For the equity segment, the company is focusing on gaining market share by targeting top 25 IFAs in T-15 cities. In terms of performance, management highlighted that 80% of the UTIAM’s equity funds are in top quartile 1 and 2.
 
UTI Asset Management Outlook: 

Over FY21-23E, UTI Asset Management expects a gradual recovery in assets and earnings. For FY21E, UTI Asset Management expects revenue/NOPLAT to grow by 2.0/-22.9% YoY.