Nippon Life India AMC Outperforms Mutual Fund Peers In Q3

Nippon Life India Asset Management Ltd. outperformed listed peers in the quarter ended December as costs fell and it managed more equity assets than before.

The mutual fund’s total assets under management fell 13.5 percent year-on-year, hurt by the outflows from debt and liquid funds.

Loss of investor confidence because of significant write-offs on exposures to stressed corporates led to a fall in debt AUM, according to HDFC Securities Ltd. But a growth in more profitable equity funds offset the decline in total AUM.

Nippon Life, according to the Association of Mutual Funds in India, manages Rs 2.04 lakh crore in mutual fund schemes. Its share of equity AUM to total AUM increased nearly 6 percentage points, leading to better operational and net profit yield. An asset manager usually earns higher income from equity-oriented funds compared with other funds.

Cost cuts, led by a decline in employee costs, too, aided Nippon Life’s profitability during the period. Employee costs fell 5 percent over the preceding three months—the first sequential decline in six quarters—to Rs 81 crore.

In comparison, net profit of HDFC Asset Management Company Ltd., the only other listed peer to Nippon Life, and Motilal Oswal Financial Services Ltd.’s AMC division rose, albeit at a slower pace. To be sure, parent Motilal Oswal Financial Services Ltd. is listed and not its AMC division.

AUMs of India’s largest asset manager, HDFC AMC, rose at the slowest pace in five quarters but the growth was faster than peers.

The company also recorded income from its portfolio management services in the third quarter. That aided its overall financials. PMS income, the company said in a conference call, tends to be “lumpy and happens usually once in a year”.

Motilal Oswal Financial Services’ AMC division, too, reported a growth in its AUM but regulatory clampdown led to a fall in its revenue and operating profit. Still, the division’s net profit surged over last year helped by lower tax rate.

Analysts’ Views And Valuations

Analysts prefer Nippon Life over HDFC AMC, largely because of its lower valuations. But the 12-month Bloomberg consensus return potential for both listed asset managers is close to 1 percent.

Analysts said faster ramp-up in market share would be critical for a further re-rating in Nippon Life India, while earnings surprise, improvement in AUM mix and higher-than-industry growth is important for HDFC AMC’s re-rating.

(The reasons have been compiled from the research reports of brokerages, including JP Morgan, Morgan Stanley, HDFC Securities, Nomura and JM Financial, among others.)