Sharekhan Recommends Buying This Stock For A 35% Upside

With the benchmark indices falling more than 10% from their peaks and select stocks falling sharply, it maybe time to look at high quality stocks. Broking firm Sharekhan believes that the stock of Nippon Life India Asset Management Limited is a good stock to buy. The firm has set a price target of Rs 430 on the stock as against a current market price of Rs 319.

A large mutual fund house

Nippon Life India Asset Management Limited is the asset manager of Nippon India Mutual Fund (NIMF). The name of the company was changed from 'Reliance Nippon Life Asset Management Limited' to 'Nippon Life India Asset Management Limited. Nippon Life Insurance Company is the promoter of the company and currently holds 73.97 % of its total issued and paid-up equity share capital. Nippon India Mutual Fund manages a series of mutual fund schemes and is among the top mutual fund houses in the country.

Decent financial performance of the company

Nippon Life India Asset Management registered a moderate net profit growth of 5% y-o-y and stood at Rs. 175 crore in Q4FY22. Revenue from operations grew by 12% y-o-y while it was flat q-o-q. Its yields declined by 6 bps y-o-y and was flat sequentially. This was primarily due to a sell-off in the equity markets, intense competition and lower yielding assets. Other income declined by 43% y-o-y (up by 13% q-o-q). While EBITDA margin was flat q-o-q at 65.1% in Q4FY22. However, operating expenses were down by 4% y-o-y and up by 3% q-o-q. Quarterly average assets under management (QAAUM) stood at Rs 2,833 billion, rising by 24% y-o-y and 1% q-o-q. The mix of Exchange Traded Fund has increased to 20% from 18% in December 2021. The company has launched seven NFOs and garnered Rs. 4,000 crore. The market share of the B-30 cities stood at 11.5% versus 11.6% in Q3FY22.

Buy with a price target of Rs Nippon India

Nippon India Life Asset Management witnessed subdued performance on revenue and EBITDA margin, we believe that Nippon India Asset management is in a better position to deliver on profitability given its robust AUM growth in the long term. "The company managed to maintain its market share during the quarter. It is also likely to benefit from the leveraging of Nippon Life's network to garner offshore mandates which would be a key to its future growth. Further, a sustained flow into MF and equity market and its widening distribution network is expected to retain its growth momentum. Additionally, its leadership position in the passive market (ETF space) is likely to benefit the company in terms of valuation as compared to its peers. At current market price, the stock currently trades at 24.3x and 20.9x its FY23E and FY24E EPS. Hence, we maintain a Buy rating on Nippon India Asset Management with a revised price target of Rs. 430," Sharekhan has said in its report.

According to Sharekhan the key risk for the stock remains the prolonged weakness in benchmark stock indices can affect inflows and AUMs.

"Any adverse regulations on trail commissions could hamper equity inflows through mutual fund distributors and hence hinder Asset management growth," the brokerage has said.