PL Stock Report - UTI Asset Management Company (UTIAM IN) - Q1FY24 Result Update - Positive surprise on equity yields - BUY

Rating: BUY | CMP: Rs814 | TP: Rs900

Q1FY24 Result Update - Positive surprise on equity yields

Quick Pointers:

§ Core earnings beat at 17bps PLe due to higher MF revenue; opex was stable.

§ We expect a 15.5% CAGR in core earnings over FY23-25E.

We raise multiple of UTIAMC from 14x to 17.4x as we increase core earnings for FY24/25E by 8.3%/5.0% given (1) rise in overall and equity AuM growth for FY24E by 7.7%/4.5%, in-line with industry and (2) earnings impact of fresh TER guidelines could be minimal. UTIAMC saw a good quarter, due to core earnings beat of 24%. Operating yields came in 4bps higher at 17bps since revenue was 6.8% ahead of PLe, while opex was largely in-line. Calc. equity yields improved by 3bps QoQ leading to 6.8% growth in MF fees to Rs2.2bn. Yield contraction in FY24/25E (3bps) could be lesser than FY23 (5bps) as lower yielding AuM now makes up for 80% of equity AuM. Valuation is at 15x on FY25E core EPS suggesting a 26% discount to Nippon which may persist unless excess cash is distributed to investors; which can be a key lever for stock to re-rate. We raise our TP from Rs770 to Rs900. Retain ‘BUY’.

§ Core earnings beat led by higher revenue: QAAuM grew by 3.9% QoQ to Rs2.48trn, compared to +6.4% for the industry. However, revenue was a beat at Rs2.8bn (PLe Rs2.6bn) while revenue growth was better at 4.9% QoQ. Consol annualized yields were higher at 46bps (PLe 43bps). Opex was largely in-line at Rs1.8bn (PLe Rs1.8bn). Employee cost was tad higher at Rs1.06bn which was offset by lower other opex at Rs612mn. Core income at Rs1bn was higher than PLe of Rs0.8bn resulting in better operating yields at 17bps (PLe 13bps). Other income was ahead at Rs1.85bn (PLe Rs0.3bn) due to MTM gains in UTI international. Tax rate was lower at 18.7% (PLe: 22%); core PAT was Rs834mn (PLe Rs644mn). PAT was Rs2.3bn.

§ Yields saw an uptick QoQ; performance dragging flows: MF fees inched up by 6.8% QoQ to Rs2.2bn driving revenue beat. Computed equity yields enhanced by 3bps QoQ to 87bps which was a positive and hence blended MF yield was up by 1bp QoQ to 35.5bps. Equity and hybrid combined saw net outflows of Rs14.8bn, compared to inflows of Rs171.5bn for the industry. Underperformance in flagship schemes has been driving net outflows for UTIAMC. Market share in equity+balanced has been declining (-11bps QoQ) and touched 3.78% as at Q1FY24 with overall market share at 5.76% (vs 5.89% in Q4FY23). While we expect equity yields to compress in FY24/25E, extent of compression could be lesser than FY23 as lower yielding AuM now makes up for 80% of equity+balanced AuM. On a blended basis we are factoring an average 3bps fall in yields in FY24/25 (5bps in FY23).

§ Opex growth should be controlled: Opex was broadly in-line for Q1FY24. Employee cost included Rs40mn on account of ESOP expense and company expects ESOP cost of ~Rs160mn for FY24E if there is no fresh issuance. Other expenses grew by 26% YoY in Q1FY24 led by IT initiatives CSR expenses and legal & strategic expenses. Management expects other expenses to remain at current levels in FY24, including cost for expansion plans. We expect a 3.6%/6.1% CAGR in staff cost/other opex over FY23-25E. As a result, we see operating yields to be stable at 18bps in FY24/25.

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