Mumbai: Lower inflows into equity funds notwithstanding, shares of asset management companies have been on investors’ radars.
HDFC Asset Management Company Ltd’s stock surged 7.7% in the last month. On Friday, the company reported a strong 79% year-on-year surge in its net profit to ₹368.3 crore for the September quarter (Q2FY20), which has piqued investor interest.
One of the key reasons for this surge in profitability was the reduction in commissions and fees paid to distributors. Net fee expenses were lower by 44% and was almost negligible in Q2. As operating expenses were considerably lower, it boosted operating margin. However, once these expenses normalise in the coming quarters, gains will stop accruing from lower fee expenses.
Nevertheless, this has given a fillip to Ebitda (earnings before interest, taxes, depreciation, and amortization) margins as one of the major expense of fees and commissions is now being charged to individual scheme accounts. Ebitda margins stood at 91% in Q2 compared with 89% in the year-ago quarter.
However, growth in revenue has been lower as asset management fees have been reduced, even as inflows slowed marginally. Revenue rose just about 3.5% y-o-y in Q2.
HDFC AMC has increased its actively managed equity assets under management (AUM) by about 11% y-o-y to ₹1.64 trillion, thanks to strong inflows through systematic investment plans. HDFC AMC also managed to maintain market share during the period in the actively-managed AUMs at about 15.8%.
One thing to watch out for would be equity inflows into mutual funds. Inflows into equity funds dipped to about ₹3,860 crore in September from about ₹8,500 crore in August. Mutual funds have seen lump sum redemptions to the tune of ₹4,370 crore, which if it continues could hamper the growth of AUMs.
Besides, HDFC AMC is quite a pricey stock. For now, it trades at a stiff price-earnings multiple of 55 times trailing 12-month earnings.