Nippon Life share price gains 4% on steady Q3 earnings

Nippon Life reported Q3FY20 revenue from operations of Rs 303 crore (rising 1 percent QoQ, but down 13.4 percent YoY), in line with Centrum's estimate, led by a higher share of equity in the overall AUM.

Operating expenses were controlled during the quarter. Core operating profit grew 22.9 percent YoY/1.2 percent QoQ. Thus PBT registered healthy growth of 18.6 percent YoY and 22.3 percent QoQ.

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Profit after tax was up 36 percent YoY and 9.2 percent QoQ to Rs 149 crore. The overall revenue yield on QAAUM was flat QoQ at 59bps, while PAT yield improved by 2bps to 29bps (aided by other income at 11bps versus 4bps QoQ). Other income was up 6.2 percent YoY / 157 percent QoQ.

Centrum Broking likes Nippon Life, given its pan-India distribution network and focus on sourcing granular retail AUM from B-30 (beyond top 30) cities.

Also, as per the management, several new corporate clients invested in NAM-India's fixed income schemes post the new ownership and rebranding in September-October 2019, it said.

On quarterly average AUM (QAAUM) basis, total AUM grew by 0.8 percent QoQ (but was down 13.5 percent YoY) with mix of 44 percent/ 27 percent / 16 percent / 13 percent in equity / debt / liquid / others, respectively against 43 percent / 29 percent / 14 percent / 14 percent QoQ. The positive delta in equity mix aided yield on overall QAAUM.

Centrum Broking expects 11.2 percent total AUM CAGR for FY20-FY22.

Haitong Securities valued Nippon Life using a dividend discount model to arrive at a fair value of Rs 23,500 crore, equivalent to 31.3x FY22 PER.

"We maintain buy rating with a 4 percent reduction in target price from Rs 400 to Rs 385 as we reflect the fact that the AUM decline in FY20 is much sharper than our expectation of -5 percent and we now build in -10 percent figure for FY20," it said.

"This resulted in lower 4 percent AUM CAGR over FY19-22 compared to 8 percent previously and our net profit estimates for FY20, 21 and 22 reduce by 2 percent, 6 percent and 10 percent respectively. On a relative
valuation basis, NAM is trading at a 28x FY22 PER," the brokerage said.

Sharekhan maintains its positive view on the stock and sees a 21-23 percent upside potential from current levels.

"Notably, there has been a reversal of trend in the asset under management (AUM) with growth coming after decline in last 4 quarters. Also 170+ new institutional investors have started investing with the AMC which is positive for long term," it said.

HDFC Securities maintained its neutral call on the stock. After a steep run-up, it expects the stock to consolidate at current levels.

"We are concerned about the loss of investor confidence which debt schemes face given significant write-downs/offs on exposures to stressed corporates. While we are hopeful of the market share re-gain, we believe the recovery will take longer than street expectations. Lastly despite our positive bias towards Nippon Life as sole promoter, increased credibility to raise HNI/institutional capital, and valuation discount (26.8 percent on FY21E P/E) to HDFC AMC, we retain neutral with an unchanged prie target of Rs 321," it reasoned.

Its SIP book has largely been flat in the Rs 800-850 crore range in the last six quarters, however, average ticket size continued to decline, largely on account of higher digital purchases and deepening penetration in B30 cities.

The management indicated that the new-SIPs-to-termination ratio for the MF industry is near all-time highs of 60-65 percent.

While maintaining hold rating with a target of Rs 340, JM Financial raised its PAT estimates for FY20/21 on the back of higher other income.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.