Nippon Life India Asset Management Ltd. share price target

We are concerned about the loss of investor confidence which debt schemes face given significant write-downs/offs on exposures to stressed corporates. While we are hopeful of the market share re-gain, we believe the recovery will take longer than street expectations. Lastly despite our positive bias towards Nippon Life as sole promoter, increased credibility to raise HNI/institutional capital, and valuation discount (26.8% on FY21E P/E) to HDFCAMC, we retain NEUTRAL with an unchanged TP of Rs 321 (30x Dec-21E NOLPAT + cash). NAM printed a broadly in-line 3QFY20, with core operating profits of Rs 1.36bn (+24.7/0.2% YoY/QoQ, 2.3% miss). Higher other income (79.7% beat!) drove profitability to Rs 1.49bn (+36.3/21.7% YoY/QoQ, 13.8% beat).

Nippon India AMC reported a broadly stable set of numbers with flat AUM growth but supported by healthy operational performance. QAAUM growth was at | 204370 crore (up 1% QoQ) on the back of growth in liquid (up 200 bps QoQ) and equity AUM (up 100 bps QoQ). Share of equity in AUM was at 44% with non-equity at 66%. SIP inflow witnessed a marginal dip at | 838 crore in Q3FY20 compared to | 842 crore in Q3FY19. Sequential flat revenue from operations at | 286 crore due to sluggish AUM growth, was offset by strong growth in other income (up 140% QoQ at | 57...

RNAM posted MF AUM decline of 16% YoY to Rs 188,600cr led by loss of business on the institutional/ HNI front. Standalone Net revenue declined 25% YoY, Operating profits grew 3% and PAT grew 22% YoY to Rs 134cr.

We are concerned about the loss of investor confidence which debt schemes face given significant write-downs/offs on exposures to stressed corporates. Lastly, the macro environment remains challenging and thus despite our positive bias towards Nippon Life as sole promoter, increased credibility to raise HNI/institutional capital, and valuation discount (26.7% on FY21E P/E) to HDFCAMC, we retain NEUTRAL with a revised Sep-20E TP of Rs 260 (24x Sep-21E NOLPAT + cash). RNAM printed an in-line 2QFY20 with revenues at Rs 3bn (23.2/7.7% YoY/QoQ), and operating profit at Rs 1.35bn (5.2/-6.4% YoY/QoQ, -1.9% vs. est.). We remain concerned of the 13.3% QoQ decline in debt QAAUM.

We are concerned about the loss of investor confidence which debt schemes face given significant write-downs/offs on exposures to stressed corporates. Additionally, given the current inter-promoter deal structure, we believe an OFS by RCAP is imminent. Lastly, the macro environment remains challenging and thus despite our positive bias towards Nippon Life as sole promoter, increased credibility to raise HNI/institutional capital, and valuation discount (37% on FY21E P/E) to HDFCAMC, we cut multiple to 22x (from 26x) to Jun-21E NOPLAT and downgrade stock to NEUTRAL with a revised Jun-20E TP of Rs 235 (22x Jun-21E NOLPAT + cash). While 1QFY20 revenues were in-line, RNAM printed a 14.1/-9.2% YoY/QoQ APAT of Rs 1.25bn, largely due to lower other income.

Retail AUM trends remains strong: During Q4FY19, overall MF AUM for RNAM remained flat as growth in equity schemes and ETFs was offset by a decline in debt and liquid AUM.

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.