Small Cap & Mid Cap AMC Stocks Gets Buy Call For Gains Up 48%, Suggested By HDFC Securities

Aditya Birla Sun Life Asset Management Company (AMC)

Aditya Birla Sun Life AMC reported a tepid quarter with top-line de-growing 6% sequentially (3% below estimates), primarily due to shrinking equity yields and shift in debt mix towards low-yielding schemes. Given the rising competitive intensity, Aditya Birla Sun Life AMC's ability to arrest equity market share erosion in the near-to-medium term remains an uphill task.

Aditya Birla Sun Life AMC is a Midcap AMC stock having a market capitalization of Rs 12,260.16 crore. HDFC Securities has estimated a target price of Rs 625 apiece, considering this, if investors buy the stocks of the company at the Current Market Price they can expect potential gains of 48% in 12 months.

Stock Outlook & Returns

The stock of the company is currently trading at Rs 425 apiece, it was opened at Rs 425.15, while the previous close was 425.15 apiece. Its 52-week low is Rs 375 apiece and 52 week high is Rs 722 apiece, respectively.

It was listed on the exchange last year in October. In terms of returns, the stock has gained 0.02% in the past 1 week, and 4.75% in the past 1 month, respectively. However, the stock has witnessed a fall of 19.7%, giving a negative in 3 months. Since its listing, its share price has fallen 39.19%.

Overall yields remain soft

Revenue clocked in at Rs 3.05bn (-5.9% QoQ), 3% below estimates. Core revenue yields dipped 0.5bps to 43.3bps despite a higher share of equity (39.9%; +56bps/-156bps QoQ) in the mix, as a result of deteriorating equity yields coupled with a shift in debt AUM towards low-yielding ultra-short-term schemes. Staff costs, at Rs 650mn (-6% YoY, -8% vs. estimates), and lower-than-estimated admin expenses cushioned weak revenues, driving in-line core operating profits to Rs 1.72bn (-1% QoQ). MTM impact from higher interest rates and choppy capital markets resulted in soft other income at INR (-308mn) vs. estimates at Rs +120mn, dragging APAT down to Rs 1.03 bn (-34% YoY).

Brokerage suggests buy for a target price of Rs 625 apiece

HDFC Securities said, "We remain positive on Aditya Birla Sun Life AMC's strong and diversified distribution network coupled with its best-in-class profitability (OP at 26bps of AAUM in FY22); however, we are concerned with the sustained pressure on yields in the medium term. We lower our FY23E/24E earnings by 4.3/1.9% to factor in lower equity AUM growth on the back of weak capital markets. We expect Aditya Birla Sun Life AMC to deliver two-year revenue and operating profit CAGRs of 6% and 5% respectively, on the back of healthy AUM growth partially offset by lower yields. We maintain BUY with a lower Target Price of Rs 625 (we ascribe a lower multiple at 25x Mar-24E NOPLAT + Mar-23E cash and investments following a de-rating of AMCs due to soft earnings growth outlook, even as we roll forward our earnings)."

UTI Asset Management Company (AMC)

UTI AMC reported a soft quarter in line with estimates despite improvement in equity yields, as elevated staff costs continue to weigh on core profitability. Amongst the top AMCs, UTI AMC holds the maximum levers to improve core profitability; however, near-term execution remains a tall ask.

UTI AMC is a small cap AMC stock having a market capitalization of Rs 8,616.82 crore. HDFC Securities sees potential gains of 31% if the stocks are purchased at the current market price, the brokerage has estimated a target price of 890 apiece.

Stock Outlook & Returns

UTI AMC stock's Current Market Price (CMP) is Rs 682.45 apiece. It was opened at Rs 680 apiece, while the previous close was 675.65 apiece. At the time of writing, the stock is trading above 1.01% from the previous close. The 52-week low of the stock is Rs 595 apiece, while the 52 week high is Rs 1,216 apiece. The stock's CMP is Rs 87.45 above its 52-week low level and Rs 522.75 below its 52-week high level, respectively.

UTI AMC was also listed recently in October 2020. In the past 1 week, the has fallen 0.84%, however, it has gained 6.69% in the past 1 month. Whereas in past 3 months, it has fallen 13.8% and in 1 year, the share declined further 31.16%, respectively. Since its inception, it has given 43.39% positive returns.

In-line core

Revenue de-grew 2.6% sequentially to Rs 2.87bn, in line with estimates; however, equity yields continued to improve sequentially on the back of normalisation in NFO environment. Revenue as a percentage of MF QAAUM dipped <1.5bps to 51.2bps despite a sharp decline in share of equity and debt (41.2%/6.4%;-157.bps QoQ) in the mix; largely on account of uptick in equity yields. Staff costs  at Rs 1.1bn (+7% YoY), came in 3% ahead of the estimates, and continued to weigh heavy on profitability - savings on this front remain elusive in the medium term. Admin expenses moderated 25% sequentially (-5% vs. estimates) due to higher trail fee and marketing expenses during Q4, driving in-line core operating profits at Rs 1.25bn (+19/22% YoY/QoQ); however, we expect admin expenses to remain volatile in the near term due to  higher competitive intensity. Negative MTM impact from higher interest rates and choppy capital markets resulted in investment income coming at Rs (-189mn), dragging APAT to Rs 0.94bn (-40% YoY).

Buy for target price of Rs 890 apiece

HDFC Securities said, "While we draw comfort from management commentary around a buoyant flows environment and a strong growth outlook for the retirement solutions business, we remain wary of continued pressure on MF yields and staff costs in the medium term. We expect UTI AMC to deliver 6% revenue CAGR and 10% operating profit CAGR between FY22-24E, on the back of healthy AUM growth and marginal cost rationalisation. Given its attractive valuation, we maintain BUY with a reduced Target Price of Rs 890 (we ascribe a lower multiple at 19x Mar-24E NOPLAT + Mar-23E cash and investments, following a derating in the AMC sector due to soft earnings growth outlook, even as we roll forward our earnings)."