Market price on the date of publishing this report-: 2042 Rs

• 52 week high – 3365 Rs
• 52 week low – 1985 Rs
• Distance from 52 week high –  64%
• Distance from 52 week low- 4%

HDFC ASSET MANAGEMENT COMPANY

HDFC asset management company , promoted by HDFC Ltd (52.72% of share) is a completely debt free company and one of the largest asset management companies in India having more than 4 lakh crores of asset under management with various equity, debt and hybrid mutual fund schemes. HDFC Asset Management Company (HDFC AMC) is the largest asset management company in India. It is also the most profitable asset management company in India in terms of net profits.

Incorporated in 1999 and approved to act as an asset management company by SEBI , it was a joint venture between Housing Development Finance Corporation and Standard Life insurance.

As of March 2020, there are 23 equity-oriented schemes and 90 debt-oriented schemes. The overall number of HDFC AMC customers was 56 lakh, compared to 2.08 crore in the market, accounting for 27 percent of the market share.

Zurich Asset Management Company Limited (ZAMC), with an AUM of Rs 34 billion, was bought by HDFC Asset Management Company in June 2003. The company’s AUM surpassed Rs 500 billion in January 2009. The company’s AUM surpassed Rs 1 trillion in October 2009. The HDFC Debt Fund for Cancer Cure was established in March 2011.

In June 2014, the company acquired Morgan Stanley Mutual Fund schemes, having an AUM of Rs 19 billion. In December 2017, the company’s AUM crossed Rs 3 trillion.

Standard Life Investments (SLI) 

A subsidiary of Standard Life Aberdeen plc group, it is one of the world’s largest investment companies. Standard Life Aberdeen plc group was created in 2017 from the merger of Standard Life plc and Aberdeen Asset Management PLC 

Operating under the brand Aberdeen Standard Investments, the investment arm manages $ 645 Billion (as at December 31, 2019) of assets, making it the largest active manager in the UK and one of the largest in Europe 

Presence in over 40 locations including 24 investment centres across the Americas, Asia, the Middle East and Australia 

HDFC Group

With operations in home finance, banking, life and non-life insurance, asset management, real estate funds, and education financing, the HDFC group has established itself as a well-known financial powerhouse in India. HDFC Limited, HDFC Bank Limited, HDFC Standard Life Insurance Company Limited, and others are among the HDFC group’s publicly traded firms.

Other SEBI licenses held by HDFC AMC include PMS and AIF. HDFC AMC invests in a variety of asset classes, including equity, fixed income, and other. Customers may choose from a wide range of savings and investment options across asset classes, all of which provide income and wealth building potential. High net worth individuals (HNIs), family offices, domestic corporates, trusts, provident funds, and domestic and global institutions use HDFC AMC’s portfolio management and segregated account services, which include discretionary, non-discretionary, and advisory services. It also has a nationwide branch network and a broad distribution network that includes banks, independent financial advisors, and national distributors.

HDFC AMC has been a key player in influencing India’s investment management market for more than two decades. When it comes to investing, it is a one-stop shop for people, families, corporations, and institutions, making it one of the leading players in a sector with great development potential.

With a focus on digitalization to improve sales, client onboarding, and internal processes, the firm is at the forefront of exploiting technology in the Indian asset management market. The emphasis on technology has improved consumers. It offers products and services through an online site, HDFC MFOnline, as well as mobile applications, which have grown increasingly important to businesses in recent years, accounting for 18 percent of total transactions in FY2021.

HDFC AMC has a Strong distribution network with 227 branches and over 70,000 empanelled distribution partners

Business

HDFC AMC had following number of schemes under its portfolio as of March 2021.

• Equity Schemes-: 23
• Debt oriented Schemes-: 90
• Liquid Schemes-: 2 and
• Other Schemes -: 7

We are not discussing in dept about the business/ products of the HDFC AMC as most of the people would be quite aware about the same. Therefore for more information about various schemes and details about it please refer to the HDFC Arc website from this link below.

Key concerns

The loss of market share by HDFC AMC has slowed the company’s growth. The fund’s market share has slashed (by 140 basis points) to 11.7 percent on a QAAUM basis, owing to a decline in the market share of the more profitable equities focused funds, which is now at 11.6 percent (vs 13.6 percent in Q3FY21). However, a gain in market share in debt funds to 14.6 percent somewhat compensated this (vs 13.8 percent in Q3FY21). Individual investors now account for 59.4 percent of total AUM, with 5.7 million unique participants.

Financials

For the quarter ended Q3FY22

Q3FY22 income from operations increased by 14.1 percent YoY to Rs. 550 crore, while AUM increased by 5% YoY to Rs 4,27,300 crore, boosted by a 33.3 percent growth in gross inflow from equity-oriented funds, as well as a remunerative mix with a greater share of equity AUM. Margin dilution in some of the schemes compensated for this. EBITDA increased to Rs. 412 crore (+7.3 percent YoY), while EBITDA margin fell to 75.0 percent (-460 basis points YoY), owing to Rs. 17 crore in ESOP expenditures. Due to reduced other revenue (-23.8 percent YoY to Rs. 86cr) and higher taxes (+10.6 percent YoY to Rs. 125cr), profit after tax fell marginally to Rs. 360cr (-2.4 percent YoY).

For the quarter ended Q4FY22

• In Q4 FY22, HDFC Asset Management Company reported a 9 percent increase in net profit at Rs 343.5 crore on revenue from operations of Rs 516.3 crore, compared to Q4 FY21. 
• Due to higher employee benefit expenditures (up 12 percent YoY) and higher other expenses, total expenses increased by 13% to Rs 138.3 crore in Q4 FY22 from Rs 122.7 crore in Q4 FY21 (up 21 percent YoY). 
• Employee benefit expenditures in Q4 FY22 comprise a non-cash charge of Rs 11.7 crore (Rs 7.3 crore in Q4 FY21) for the amortized cost of outstanding employee stock options, according to the AMC.
• In Q4 FY22, profit before tax was Rs 442.6 crore, up 5% from Rs 422.8 crore in Q4 FY21. During the quarter, tax revenue fell by 7% year on year to Rs 99.1 crore.
• The company’s QAAUM was Rs 4,32,100 crore as of March 31, 2022, up from Rs 4,15,600 crore as of March 31, 2021, a 4 percent increase. The mutual fund business has an 11.3 percent market share in QAAUM.
• As of 31 March 2022, QAAUM in actively managed equity-oriented funds, excluding index funds, was at Rs 1,98,000 crore, with a market share of 11.5 percent.
• As of March 31, 2022, the ratio of equity-oriented AUM to non-equity-oriented AUM is 51:49, compared to 48:52 for the industry.
• Individual investors provided 62.4 percent of the company’s total monthly average AUM as of March 31, 2022, compared to 55.2 percent for the industry.
• In FY22, HDFC AMC increased its net profit by 5% to Rs 1,393.1 crore, thanks to a 14 percent growth in income from operations to Rs 2,115.4 crore, compared to FY21.
• Total Live Accounts stood at 9.9 million as on 31 March 2022. Unique customers as identified by PAN or PEKRN now stands at 5.8 million as on 31 March 2022 compared to 33.7 million for the industry, a market share of 17%. 

Managements Comments 

• HDFC AMC will submit a Category II AIF PPM to the regulator in the near future. It would be a fund of funds that would invest across the spectrum, from early feed to late stage. It’s also working on a Category III AIF application.
• Regulatory permissions for the company’s wholly-owned subsidiary in GIFT City are pending.
• The number of unique investors climbed from 53 to 58 lakh.
• HDFC AMC issued eight NFOs in FY22 and plans to issue additional NFOs in the AIF side.
• HDFC AMC has received authorisation to launch nine more ETFs, with three more to be added in the near future.
• HDFC AMC had filed for a defense fund, a multinational corporation fund, and a business cycle fund.
• HDFC AMC intends to provide PMS services in the coming quarters and has begun discussions with potential partners.
• The digital nudges reduced redemption by 2.5 percent, but its analytic-based campaign saw 2.5x higher effective conversion rates.
• In FY22, “Connect,” a new age digital marketing platform for HDFC AMC’s partners to assist them exploit the power of digital marketing, had a 2x increase in user base and a weekly active engagement rate of over 50%.
• In terms of other expenditures, HDFC AMC had a 27 percent year-over-year rise in FY22. This is due to a low base effect caused by the shutdown in the second half of FY21.
• The corporation was increasing its investments in technology and digital infrastructure in a measured way.
• The firm now offers 12 ETFs that have been approved, and they are trying to increase its offering.

Recent announcements by Parent Company HDFC’s merger with HDFC BANK

On the merger of HDFC & HDFC Bank, HDFCAMC will become a subsidiary of HDFC Bank, and this will facilitate more efficient cross-selling of banking and financial services products that includes insurance and mutual funds.

Sectorial Outlook

The AUM of the mutual fund industry in India has grown at a CAGR of 15.5% over the past five years, with the equity AUM growing at a CAGR of 17.3%. Rising awareness about benefits of investing in equity markets, growing popularity of ways of investing, such as SIP, are some of the factors contributing to the increased participation of domestic individual investors in the Indian mutual fund industry. The MAAUM of individual investors in the industry has reached Rs 12.9 Lakh Crore in March 2020 and has recorded a growth of 18.2% since March 2015. The number of individual folios have increased from 4.14 Crore to 8.93 Crore in this period. Net inflows into the industry over the past five fiscal years were Rs 9.46 Lakh Crore, of which Rs 6.47 Lakh Crore have been in equity-oriented schemes. On the other hand, fixed income products including liquid funds have seen increased popularity amongst corporate, as well as retail and high net worth investors. 

The monthly SIP flows grew 2.8 times from April 2016, to Rs 8,641 Crore in March 2020. The number of SIP transactions processed in March 2020 was 3.12 Crore as compared to 1.01 Crore in April 2016. SIPs offer the benefit of regular investing coupled with benefits of rupee cost averaging and are typically sticky long term inflows and lend visibility and predictability of AUM growth. 

Conclusion

HDFC AMC backed by a strong parent and one of the largest Asset Management Company in India in terms of Asset under management is a completely debt free company as well as most profitable AMC in India as claimed by the management. HDFC had a poor performance in Q4FY22, with a sequential decline in AUM and topline growth. Despite this, we feel HDFCAMC is a solid retail brand with a 5.8 million unique investor base as of March 31, 2022. We believe the company’s premium valuation to be supported by its strong brand equity and distribution mix. The company’s efforts to reclaim market share through new product releases and digital activities are projected to pay off in the future, as seen by its results.

If the economy remains stable and individual investors continue to invest/save, we predict HDFCAMC to expand in the future. The combination of HDFC and HDFC Bank, we believe, would serve to promote the cross-selling strategy and boost the company’s market position. We remain positive about the industry’s performance as equity contribution improves, but we are concerned about HDFCAMC’s market share erosion as a result of the more competitive environment. AMC’s premium value is expected to remain due to its high brand equity.

Thus HDFC AMC trading at its 52 week low is worth exploring for long term.