HDFC Asset Management Company Stock Research Report

Strong performance on flow, performance and costs continues; market outlook remains key
earnings determinant…..

HDFC AMC reported a 27-quarter high core EBITDA of INR 7.6bn in Q3FY25 driven by better yields and cost performance which can also be seen basis operating profit of 37bps as a %age of AAUM in Q3. Over 9MFY25, consistent fund performance across segments led to superior business metrics such as gain in equity market share, unique investor share and SIP flow market share in equity segment across channels. Our current estimates consider ~12%/15% end-to-end AUM growth in FY26/27E and ~3bps drop in yields between FY24–27E. The prospect of declining yields with AUM growth remains a risk due to telescopic pricing, fresh flows, regulation and competition.

However, increasing systematic flows, higher equity mix and active management of commissions as seen in Q2/Q3FY25 could mitigate the impact of declining yields. Maintain ADD. We believe high equity mix, low cost to AUM and past track record of cost salience justify higher multiples than peers.

Maintain ADD; TP revised to INR 4,400

Our valuations are based on 33x FY27E core EPS of INR 120.8 (earlier INR 111.1 on 40x FY26E core EPS) and cash of INR 415 per share, which leads us to a revised TP of INR 4,400 (earlier INR 4,832). Key assumptions: 1) ~1.3%/12%/15% growth in AUM (end to end) in Q4FY25/FY26/27E. 2) Nearly ~3bps cumulative decline in yields between FY24 and FY27. 3) Total cost CAGR of 12% between FY24–27E. This would put opex at 9.1bps of AUM vs 11.5bps/8.7bps as of FY24/Q3FY25. This translates into 21.2%/20.1% CAGR in core EBITDA/core PAT between FY24–27E but 11.5%/12.3% CAGR between FY25-27E. We have factored in lower multiple basis weaker AUM/EPS growth trajectory going ahead between FY25-27E.

Upside potential exists basis strong periods such as FY24 (40% end-to-end AUM growth for HDFC AMC), better flows on the back of improved fund performance, an invigorated HDFC Bank channel post-merger and growth in systematic investments. Downside risk could stem from any regulatory cut in TERs and protracted period of market correction.

Financial Summary

Systematic flows grew 4% QoQ

HDFC AMC’ SIP and STP flows’ market share expanded from 13.1% in Q1FY24 to 14.9% in Q3FY25 (vs 15.5% in Q2FY25) against SIP inflow of industry. SIP AUM has increased from INR 1.6trn in Q1FY25 to INR 1.8trn in Q3FY25, representing SIP AUM market share of 13% as on Dec’24 (vs 12.9% in Sep’24). Unique investor share for the company increased from 23% in Q1FY25 to 24% in Q3FY25.

Equity-oriented AUM market share slightly declined for Q3FY25

HDFC AMC’s equity-oriented market share slightly declined from 12.9% in Q2FY25 to 12.8% in Q3FY25. On a QoQ basis, overall AAUM market share remained stable at 11.5% in Q3FY25. Liquid AAUM saw an improvement of 80bps to 12.9% QoQ. Debt AUM witnessed 30bps decline in market share to 13.2% during the same period.

High equity mix with low cost is the best industry combination-unique to HDFC AMC

HDFC AMC’s equity AUM mix decreased 80bps to 64.9% in Q3FY25 but remained significantly higher than industry’s equity mix of 57%. Operating expenses, as a percentage of AUM, have remained in the range of 11–12bps over FY20-24 but have now decreased to 8.7bps in Q3FY25. During the quarter, employee expenses decreased by 1% QoQ and other expenses decreased by 15% QoQ as there was no NFO or CSR-related expenses.

Strong operational footing in terms of investor share

Unique investors for HDFC AMC increased from 11.8mn in Q2FY25 to 12.6mn in Q3FY25. Unique investor share for the company remained stable at 24% in Q3FY25. Live accounts increased from 20.7mn to 22.1mn during the same period. From Dec’23 to Dec’24, industry added 10.6mn new incremental investors, of which ~37% (3.9mn unique investors) belonged to HDFC AMC.