HDFC AMC revenue yield falls on growing AUM, brokerages offer mixed verdict

Analysts at HSBC noted that HDFC AMC has managed to increase its market share in AUM by 10 basis points quarter-on-quarter. However, there are concerns regarding the pressure from income yields

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HDFC AMC has impressed analysts with growth in its assets under management (AUM), systematic transactions, and with market share gains in the June quarter. However, a 42 percent rally in the past two months indicates the stock has priced in all positives, believe brokerages.

At 11:15am, the HDFC AMC share was quoting at Rs 2,481 on the NSE, down 0.6 percent from previous close.

HDFC AMC’s revenue yield declined in the quarter which has been a dampener for investors. Revenue yield dropped 3 basis points year-on-year to 47.3 bps as a percentage of QAAUM in Q1 FY24. QUAAM stands for Quarterly Average Assets Under Management.

Also Read: HDFC AMC Q1 net profit jumps 52% to Rs 477 crore on AUM growth

Analysts at BoB Capital explain that the yields will continue to fall as AUM rises because regulation states that an increase in AUM will entail a fall in total expense ratio (slab-wise).

For instance, the AUM of HDFC Balanced Advantage Fund was Rs 52,000 crore as on March with a corresponding TER of 1.5 percent. AUM increased to Rs 57,000 crore at the end of June with TER declining to 1.47 percent, a 3 bps dip solely due to the change in AUM.

TER indicates the amount an investor would need to pay to manage his/her portfolio.

HDFC AMC’s QAAUM stood at Rs 4.85 lakh crore compared to Rs 4.15 lakh crore in the year-ago period, commanding an 11.3 percent market share in QAAUM of the mutual fund industry.

Analysts at HSBC noted that HDFC AMC has managed to increase its market share in AUM by 10 basis points quarter-on-quarter. However, there are concerns regarding the pressure from income yields, which may result in earnings growth being slower compared to the AUM growth.

HSBC has Hold rating on the stock with target at Rs 2,374per share.

BoB Capital, on the other hand, has revised its target price on the stock to Rs 2,445 from Rs 1,946 earlier with a ‘hold’ rating. “The low share of HDFC Bank in generating business and soft industry net flows will likely remain a drag on growth for a big player like HDFC AMC. In the event the regulator (Sebi) mandates a further decline in TER, yields could reduce further,” it said in a report.

InCred Equities has downgraded HDFC AMC’s rating to ‘hold’ from ‘add’ earlier, with a new target price of Rs 2,450.

In the ‘buy’ camp, there’re Nuvama Institutional Equities and JM Financial. Nuvama has raise its FY24/25 NOPLAT for HDFC AMC by 9.2 percent/18.2 percent to build in better equity market conditions. NPLAT stands for net operating profit less adjusted taxes. While Nuvama has a target price of Rs 2,650 on the stock, JM Financial has set it at Rs 2,760.

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