Nippon Life India Asset Management Ltd. share price target

We are encouraged by the cost control shown in 4QFY19 and hope that it continues into the future. Additionally, we are excited by the prospects of exit of ADAG as promoter, which we believe will aid fund raising from HNIs and institutions. We revise our FY20E/21E EBIT estimates upwards by 14.5/9.1%. Led by a 47.1/25.6% YoY/QoQ drop in other expenses RNAM reported an EBITDA of Rs 1.14bn (+4.5/19.7% YoY/QoQ) and 17.7% above our estimates. We expect exit of ADAG to positively impact both performance. We value RNAM at 26x on its FY21E NOPLAT + value of investments to arrive at TP of Rs 254 (+29.7%) i.e. 5.5% of FY21E AUM.

RNAM reported standalone PAT of Rs 110.2cr (down 14% YoY) and revenues of Rs 334.1cr (down 15% YoY) led by moderation in yield and decline in AUM growth. While some moderation in core yields was expected with RNAM moving to full trail model of commission (from earlier upfront commission model)

We have a BUY rating on RNAM with a TP of Rs 200 (+30.1%). Our TP implies a FY20/21E P/E of 23.6/20.2x. Private life insurers individual NBPs grew 17% YoY to Rs 46bn in Jan-19 (FY19TD growth 15%). Mutual fund equity (ex. arbitrage and ETF) net inflows on the other hand declined to a 31-month low of Rs 52bn in Jan-19 i.e. 51% below FY19TD monthly average of Rs 106bn.

We value RNAM on a DCF-based multiple of 20.9x on its FY21E NOPLAT and add value of investments and cash to arrive TP of Rs200 (+28.3%). Our TP implies a FY20/21E P/E of 23.6/20.2x. RNAM reported a muted 3QFY19 with revenues/PAT at Rs 3.5bn/1.1bn (-12.3/-17.0% YoY). AUM growth was sluggish (-3.0/-3.5% YoY/QoQ) owing to volatile market conditions and weaker equity inflows. Revenues and other operating expenses declined 12.3/10.5% YoY and 26.4/12.9% QoQ, on account of regulatory changes which resulted in payment of commissions directly from scheme accounts.

Reliance Nippon Life Asset Management (RNAM) reported a net profit growth of 10.4% YoY at Rs. 111 cr. The overall mutual fund QAAUM grew at a healthy pace of 5.8% YoY, which was led by 24.6% YoY growth in Equity QAAUM. However, debt QAAUM declined on a YoY basis due to redemption pressure witnessed across the industry during the quarter.

We expect RNAM, being amongst the larger AMCs and having schemes with large AUMs, to face revenue challenges in the near-term but it is in a better position to handle the pressure due to operations of scale.

SEBI notifies significant changes to TER structure In its board meeting held today, SEBI has notified reductions in the maximum TER that can be charged to mutual fund schemes. The regulator has also notified that all commissions and expenses are to be expensed from the MF schemes alone and not through any other route (AMC/Trustee P&Ls; a common industry practice). Moreover, AMCs will no longer be allowed to pay out upfront commissions (except for certain relaxations in the case of SIPs). While the move is a positive step towards increasing reach and reducing costs for retail MF investors and also improves transparency, it has a negative impact on profitability for AMCs....

Profitability in Q1FY19 was impacted due to transition to IND AS, largely on account of MTM losses on investments. Operating profit remained robust at 23% YoY led by improvement in OPMs on controlled opex. Overall AUM rose 8% in Q1, with strong equity AUM growth of 34% yoy.

RNAM reported a strong quarter with PAT for 4QFY18 up 35% YoY at INR 162bn. Quarterly average AUM in equity MF schemes witnessed strong growth (+53% YoY). However, overall quarterly average MF AUM grew 16%, as debt MF schemes faced pressure from rising interest rates. Equity MF schemes now contribute 37% of RNAM's overall MF AUM (on a closing basis), up from 30% as of FY17.RNAM's profitability witnessed a sharp uptick in 4QFY18, with PAT / QAAUM at 26bps for the quarter and 24bps for the full year FY18. However, there were some one-offs for the quarter relating to a) other income (+113% YoY) at INR850mn due to recognition of investment income in MF schemes and accrued interest...

mutual funds has been deepening and is reflected well in the strengthening flows from both Top 15 and B15 locations. Indian mutual fund AUM stood at Rs23tn as of Q4FY18 and the trend suggests a likely growth rate of 22-24% CAGR between FY18-FY22E. This can more than double the MF AUMs beyond Rs50tn market over next four years. We...