Nippon India Life MF gains 9% despite huge block deal, keeps analysts bullish

Nippon India stands to gain from a growing AUM and a steady fund performance, analysts say.

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Shares of Nippon India Life Mutual Fund traded in the green on December 20 following news of a Rs 726-crore block deal. IndusInd Bank was the likely seller of 1.78 crore shares, or 2.86 percent equity stake, in the company, reported CNBC TV-18.  The deal was done at a floor price of Rs 427.

Over the last five years, the stock price has doubled, giving investors multibagger returns. After the news of the deal, Nippon AMC zoomed over 9 percent to hit a 52-week high of Rs 489 early on December 20. By mid-day, the stock was trading at Rs 475.65.

Also read: Nippon AMC shares soar 9% after Rs 762 cr block deal; IndusInd Bank offloads entire stake

AMC stocks have been clocking steady gains over the last few months. According to Gaurang Shah, senior vice-president at Geojit Financial Services, AMC stocks have been doing well due to the gains being seen in the market. “If the market does well, stocks associated with it will continue to do well,” he said. AMCs with good inflows, AUMs and returns will benefit from a good market. Other AMC stocks like HDFC AMC gained 3.46 percent and Aditya Birla Sun Life AMC also gained 4.9 percent

Shareholding pattern

As of September 2023, promoter holding in Nippon AMC was around 73.68 percent, followed by 19 percent institutional holdings and around 6.92 percent held with the public. Of the institutional holdings, domestic investors hold around 5.1 percent and 14. 6 percent are held by FIIS and FPIs.

IndusInd Bank, as of September 2023, held around 2.86 percent stake in the AMC. If confirmed as the seller, they will be exiting the stock. IndusInd Bank picked up stake in the AMC in December 2020 after Nippon India’s merger with Reliance. At that time, the stake was around 3.35 percent.

While promoters have decreased stake in the stock over the last quarter (73.64 percent from 73.47 percent earlier) while mutual funds have increased stake in the stock over the last quarter with HDFC Mutual Fund increasing stake in the stock and UTI Mutual Fund buying into the stock.

Also read: Bank of India infuses Rs 19.2 crore in its mutual fund arm

How the AMC has performed

In Q2FY24, Nippon lIFE AMC reported an average assets under management (AUM) of Rs 3,506 billion, up by 23 percent from the previous fiscal and 11.8 percent from the previous quarter. The market share also grew to 7.46 percent, a 16 basis points increase YoY and 18 basis points Q0Q.

During the quarter, the AMC reported substantial gains with net profit rising to Rs 244.41 crore for the quarter ending September 2023, an 18.6 percent YoY increase. Nippon Life AMC’s revenues also rose 19.87 percent YoY to Rs 397.48 crore. On the other hand, the company saw some decline in “other income” to Rs 77.88 crore from Rs 116.87 crore in Q2FY23.

The management continues to remain optimistic on the growth despite a growing number of new entrants on the back of a strong and large investment team with a focus on active management.

According to latest Association of Mutual Fund Industry (AMFI) data, the AUM of the Indian mutual fund industry has grown five-fold over the last decade to Rs 49 trillion. Nippon continues to be among the top-five AMCs in terms of AUM. Other peers include SBI, ICICI, HDFC and Axis Mutual Funds.

According to Motilal Oswal’s November 2023, Fund Folio report, the highest MoM increase in NAV was witnessed by Nippon India Growth Fund (a 10 percent MoM increase), Nippon India Small Cap Fund (8.4 percent MoM increase), HDFC MidCap Opportunities Fund (8 percent increase), HDFC Small Cap Fund (7.9 percent increase), and HDFC Flexi Cap Fund (7.4 percent MoM).

What analysts say

Analysts have mostly been positive on Nippon Life India Mutual Fund. Out of 18 analysts tracking the company, around 15 have ‘buy’ calls and around three have ‘holds’, as per Bloomberg estimates, with an average 12-month target price of Rs 423.07.

For analysts at Bank of Baroda Capital, Nippon AMC continues to be a top pick on the back of “robust equity flows (including SIPs), rising market share and sustained ETF leadership”, they said in  a December 14 report. The brokerage continues to have a ‘buy’ call on the stock with a target price of Rs 513 (unchanged).

Analysts at ICICI Securities in a November 2023 report have also given the stock an ‘add’ call with a target price of Rs 411, up from a previous Rs 371. “A combination of overall industry AUM growth, strong retail franchise and good fund performance has driven significant market share gains for Nippon Life. Our estimates factor in end-to-end AUM growth between September 2023 and March 2025 with an overall yield decline of 1.2bps between Q2FY14 and full year FY25,” the report said.

They have identified key risks of lower than expected AUM growth and higher than expected yield decline.

Consistent and strong performances in the equity schemes have helped Nippon India AMC to gain flow and market share over the last few quarters, along with engagement with distributors/IFAs, analysts at B&K Securities said in their latest report.

The management, the report added, remains focused in terms of investing in business when conditions remain buoyant. B&K Securities has an ‘add’ call on the stock with a target price of Rs 401.

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