Rise in share of equity funds boosts HDFC AMC's Q1; profits up 25%

While total AUM growth outpaced industry's growth, net profit up by 25 per cent

After strong listing gains on August 6, the HDFC AMC stock corrected by three per cent to Rs 1,760.65 on Tuesday. 

However, analysts believe that given the potential for growth, the stock could see some upside from these levels. In its June quarter results, the first after listing, the company clocked 25 per cent year-on-year growth in net profit to Rs 2.1 billion, driven by expansion of its equity assets under management (AUM).

Actively management assets rose 33 per cent year-on-year to Rs 1.5 trillion and equity AUM’s share expanded by 400 basis points to 50.2 per cent (110 basis points lower sequentially). 

Thus, operating profitability (operating profit as a proportion of average AUM) improved to 35 basis points in Q1 from 32 basis points a year back. Total AUM grew 22 per cent year-on-year to Rs 3 trillion, outpacing the mutual fund industry’s AUM growth of 21 per cent.

According to the management, equity business predominantly came from retail investors. In Q1, HDFC AMC’s  individual accounts rose by 29 per cent year-on-year and individual monthly average AUM (MAAUM) increased by 26 per cent to Rs 1.9 trillion. In fact, the share of individual MAAUM in the total increased to 62.4 per cent as of June 2018 from 58.6 per cent a year back. 

“With increasing awareness among retail investors about mutual funds and systematic investment plans (SIP), which have higher equity proportion (grew 41 per cent year-on-year to Rs 11.6 billion and 64.6 per cent of SIP book has over 10-year tenure), retail flow is likely to be strong, improving HDFC AMC’s earnings potential,” said an analyst not wanting to be named.

The analyst expects the company’s SIP share in the total AUM to rise from the 24 per cent level in Q1. A 290 basis points rise in direct distribution channel, which saves distribution costs, to 35.8 per cent of the overall AUM, further supported the bottom line. 

The management expects this share to remain the same in the near future. HDFC AMC’s strong network of 134 branches in B-30 cities (13 per cent of total MAAUM) also augur’s well as it tends towards the more profitable equity segment, the analyst added.