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Morgan Stanley upgrades HDFC AMC to 'overweight', raises target price by 40%

Morgan Stanley has forecast an EPS growth of 20 percent in FY22 and 18 percent in FY23 to arrive at the target price of Rs 3,130.

December 08, 2020 / 01:07 PM IST

Financial firm Morgan Stanley (MS) has upgraded HDFC Asset Management Company (AMC) from even-weight (EW) to over-weight (OW), raising the target price by 40 percent to Rs 3,130 from Rs 2,235.

The new target price implies a 16 percent upside from the stock's December 7 close of Rs 2,708.60 on BSE.

"We forecast EPS growth of 20 percent in FY22and 18 percent in FY23. Thus, we arrive at our price target of Rs 3,130," said Morgan Stanley.

"Our bull case scenario value of Rs 5,215 implies 103 percent upside. It assumes an EPS CAGR of 24 percent (F20-23e) and a target P/E multiple of 45 times (peak valuation multiple has been 57 times)."

Morgans Stanley underscored that the stock had significantly underperformed both the Sensex and the BSE Bankex.


As of December 7, the stock was down 15 percent this year against a 10 percent rise in the Sensex and a 6 percent fall in the BSE Bankex for the same period.

Since November 2019, the stock has significantly de-rated, with one-year forward price-to-earnings multiple declining from a peak of 57 times to nearly 36 times now, Morgans Stanley said.

In its view, the underperformance could be attributed to weak industry fundamentals and a loss of market share.

"The asset management industry has seen continued outflows in equity ex- ETF(more profitable business), despite systematic investment plan (SIP) inflows remaining fairly resilient. Further, HDFC AMC has progressively lost market share in equity ex ETF. For October 2020, its market share in equity ex-ETF funds was 13.5 percent (on a monthly average AUM basis) vs 15.3 percent as of October 2019," Morgan Stanley said.

It added that in its Q3F20 post-earnings conference call, the management had attributed the loss of market share to the underperformance of the mid and small-cap categories, which were then nearly 19 percent of AUM for HDFC MF against about 11 percent for the industry.

Why an upgrade?

Morgan Stanley expects a broad-based earnings recovery and double-digit returns in 2021, with small and mid-cap stocks outperforming.

The Morgan Stanley India Equity Strategy team expects BSE Sensex to be at 50,000 by December 2021.

The global financial firm believes as the macro environment continues to improve, non-SIP domestic flows should come back strongly in FY22, and there could be a case of a rise in contribution from SIP flows, too.

"This, along with mark-to-market gains, should drive AUM growth for the industry. HDFC MF should be a disproportionate gainer if our assumption of a broad market recovery ensues," Morgan Stanley said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Dec 8, 2020 01:07 pm

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