Buy This Mid-Cap AMC Stock For Target Price Of Rs 360, Recommended By Axis Direct

Axis Direct in its recent report recommends 'buy' the stock of Nippon Life India Asset Management Limited for a target price of Rs 360 apiece. The brokerage claims 20% potential gains in 12 months if investors buy the stock of the company at the current market price. Nippon Life India Asset Management Limited is a mid-cap Asset Management Company (AMC) having a market cap of Rs 18,902.38 crore.

Stock Outlook

The current market price of the stock is Rs 303.30 apiece, opened at Rs 304.75 apiece. The stock's 52 week low is Rs 259 apiece and the 52 week high is Rs 476.45 apiece, respectively.

Returns of investment

In the past 1 week, the stock has fallen 4.23%. Whereas, over the past 1 and 3 months, the stock surged and gave positive returns of 8.66% and 6.53%, respectively. The stock over the year has fallen 27.85%. In the past 3 years, it surged 11.21%. It was listed on the exchange on 6 November 2017, according to NSE.

Rising AUM Market Share To Drive Growth

The company reported an impressive 23% growth in the total operating income to Rs 1,307 Cr owing to the strong growth in AUM during FY22, which was largely driven by growth in the equity and ETF categories. Its operating profits also reported a healthy YOY growth of 42%, aided by the company's continuous cost rationalization efforts as well as better performance in its topline. By keeping costs under control, the company's operating profit margin improved to 61% in FY22 from 52% in FY21. Consequently, PAT grew by 9% YOY.

Key Highlights

Highest-ever annual profit: With continuous growth in overall AUM's market share, NAM posted the highest-ever annual profit of Rs 743 Cr in FY22 and also paid the highest-ever dividend of Rs 11/share. 

Largest investor base in the industry: Led by its strength in the retail segment, NAM currently boasts the largest investor base in the industry with 17 Mn folios (+7 Mn in FY22). 

Muted performance in yields: The company's yields reported a muted performance due to portfolio churn, increased competition, and TER regulations. 

Increase in the Mutual fund QAAUM market share: NAM's market share in the Mutual fund QAAUM stood at 7.38% in FY22, up 26bps YoY. 

Competitive edge in the passive category: Besides equity and debt, it has a good offering of index funds across equity, debt, and gold. It has ~25 ETF schemes. Incrementally, investors are evoking good interest in passive funds. 

Strides in its ESG journey: In FY22, it announced its ESG vision and mission and became a signatory to the United Nations Principles for Responsible Investment (UN PRI).

Key Competitive Strengths

a) Larger allocation towards passive products by informed investors.

b) Increasing flows from smaller cities/towns.

c) A strong owned distribution network with extensive reach across India.

d) Deepening digital channel distribution contributing to disintermediation and de-risking of sales and distribution.

e) Leveraging Nippon Life's global network for international tie-ups and partnerships.

f) New frontiers of growth in emerging areas of business such as AIF.

Strategies implemented

NAM has adopted a differentiation and low-cost approach and is focused on scaling up its AIF/PMS businesses which should increase the share of these segments in the AUM mix. The strategy implemented coupled with its strength in the retail segment resulted in NAM having the largest investor base in the industry with 17 Mn investor folios (+7 Mn in FY22). It also intends to leverage Nippon Life's global network to scale up its offshore business. Cost controls will aid in earnings growth. In FY22, strong growth was seen in the ETF segment (20% of the total AUM).

Growth drivers

a) Under penetration providing large opportunities.

b) Increasing inflows from smaller cities/towns.

c) Strong distributor network.

Key focus areas for the company

According to the brokerage, the key focus areas of the company includes:

a) Delivering superior Fund performance.

b) Consolidating its passive strategy.

c) Expansion of Non-MF businesses.

Outlook

According to the brokerage firm, "With NAM's rising market share and retail segment, we believe the growth will continue as the macroeconomic conditions improve. With the Covid-19 pandemic behind us and the economy reviving to its pre-Covid levels, NAM can now penetrate deeper with its strong distribution network. While rising inflation and interest rate scenarios, volatile markets, and geopolitical pressures are some key challenges for NAM, the long-term prospects of the Indian AMC industry remain intact. This is on account of the industry's low penetration levels in India vis-à-vis developed countries as well as its play on the financialisation of savings in India."

Recommendation

The brokerage said, "We believe NAM will continue its growth trajectory in the near term by leveraging its robust risk management practices. With the sustained increase in AUM market share and improved outlook, we maintain its BUY rating with a target price of 360 (25x FY24E EPS), implying an upside of 17% from CMP."

Disclaimer

The stock has been picked from the brokerage report of Axis Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.