Mutual fund companies’ assets under management (AUM) have been inching up steadily. AUM had a decent role in HDFC AMC Ltd’s December quarter results, with reported revenues and profits largely in line with analysts’ estimates. Shares were up about 1% on Wednesday.
A key highlight: the fund house’s AUM grew 12% year-on-year to ₹3.7 tr. As a result, the AMC’s revenue and net profit have been rising at a healthy clip.
In Q3, revenues from asset management rose a reasonable 10% y-o-y. But lower expenses and higher operating leverage resulted in the company’s earnings before interest, tax, depreciation and amortization increasing by 30% in Q3. Aided by the corporate tax-rate cuts, HDFC AMC’s net profit increased by about 44% y-o-y.
The AMC has maintained its lead in equity AUM, which improves the revenue mix. However, the fund house saw its market share on closing AUM basis decline to about 13.9% in Q3 from 14.9% in Q2. This closing AUM has been due to year-end outflows in liquid funds, notes the management.
During the December quarter, however, the company’s systematic investment plans (SIPs) rose at a slightly lower rate of about ₹1,220 crore a month. In monthly SIPs, the fund has about a 14.3% market share.
Retail investors constitute a sizeable 60% of HDFC AMC. “We believe HDFC AMC has a highly profitable product mix, given its share of individual equity and balanced schemes in total AUM. Individual flows tend to be sticky while equity segments enjoy higher margins,” said analysts at Nirmal Bang Equities Pvt Ltd in a note to clients.
According to the management, the penetration of mutual funds, overall, is low as equity is significantly under-allocated by investors. Nevertheless, the shares are trading at stiff valuations.
On its trailing 12-month earnings, the price-earnings multiple is about 57 times earnings, quite pricey. Any slowdown in AUM growth due to the volatility in market could take some sheen of its valuations.