HDFC AMC soars 22% in four days in a weak market on strong Q1 results

Shares of HDFC Asset Management Company (AMC) were trading higher for the fourth straight day, ralling 9 per cent to Rs 2,369 apiece on the BSE on Friday in an otherwise weak market, after it reported strong numbers for June quarter of financial year 2019-20 (Q1FY20). The stock was trading at the highest level since its listing on August 6, 2018.

In the past four days, HDFC AMC has rallied 22 per cent as compared to a per cent decline in the S&P BSE Sensex. It zoomed 90 per cent from its 52-week low level of Rs 1,248 touched on September 21, 2018 in intra-day trade. A sharp rally in the stock pushed the market capitalisation of HDFC AMC above Rs 50,000 crore mark in the intra-day trade today.

The company reported a 42 per cent year-on-year (YoY) jump in the net profit at Rs 292 crore in Q1FY20. The strong profit growth was led by lower expenses and higher other income, the company's financial data show.

Assets under management (AUM) rose 18 per cent to Rs 3.57 trillion in the quarter under review. Among these, AUM in actively managed equity-oriented funds, i.e. equity-oriented total AUM, excluding arbitrage funds and index funds, grew to Rs 1.69 trillion as on June 30, 2019 with a market share of 16.2 per cent.

The company's operating profit from core asset management business in the recently concluded quarter jumped 44 per cent YoY to Rs 381 crore as against Rs 265 crore in Q1FY19.

“The sharp uptick in operating profit in the quarter was largely because HDFC AMC was able to maintain the core profit before tax (PBT) margin of 42bps, as it was able to pass on large part of the total expense ratio (TER) cut to distributors. Management indicated that they should be able to maintain core PBT margins in the range of 42-43bps” analysts at JM Financial Institutional Securities said in a company update report. The stock was, however, trading above the brokerage firm's target price of Rs 2,200 per share.

“India’s underpenetration of mutual funds relative to the world and vs. competing areas of bank deposits/insurance additionally lends credence to longer-cycle growth from the 'financialization' of savings. Further, the company’s business model checks most of the investment criteria of a growing and high-ROE business, positive free cash flow and high dividend payouts,” analyst at JP Morgan said in a report.

The brokerage firm, however, believes a valuation of 30x FY21E P/E, heightened regulatory risks on fee structure and the outlook for equity market performance cap upside present near term risks. It has ‘neutral’ rating on the stock with March 20 target price of Rs 1,950.

At 11:32 am, HDFC AMC was trading 6 per cent higher at Rs 2,307 as compared to a per cent decline in the S&P BSE Sensex. The trading volumes on the counter jumped more than four-fold with a combined 1.8 million shares changing hands on the BSE and NSE so far.