Their funds make you money; now, their stock is also raking it in. The story of Nippon Life AMC

AMC

For the longest time, mutual funds have propelled markets upward with their firepower. Now, the market is favouring their stocks as well. Over the past month, while the Nifty has remained stagnant, AMC stocks have been on the rise, with Nippon Life AMC leading the charge.

The stock has surged by more than 25 percent in one month, hitting a lifetime high. This performance outshines even the most esteemed and expensive listed AMC stock to date, HDFC AMC, which has remained flat. UTI AMC has gained approximately 8 percent, while Aditya Birla Sunlife AMC saw an increase of around 10 percent over the same period. What's driving this exceptional performance? There are five main factors at play.

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Fast Growth: Nippon Life has emerged as the fastest-growing AMC in the country over the past year. While the total AUM for large AMCs, those with a corpus above Rs 1 lakh crore, saw a growth of 31 percent over the past year, Nippon saw its total AUM grow by 52 percent, topping the growth charts. Its equity AUM grew by an impressive 76 percent, second only to Edelweiss AMC. Edelweiss AMC saw its equity corpus grow by 80 percent in FY24. The more assets managed, the higher the earnings by way of fees, which directly adds to the bottom line.

High Equity Component: Of the Rs 4,38,277 crore that Nippon manages, 66 percent is in equity mutual funds, one of the highest among large mutual fund companies. AMCs can charge higher management fees for managing equity assets, making them usually more profitable compared to those more focused on debt. The weightage of equity AUM in the total corpus is highest for Mirae Asset at 88 percent, followed by UTI (76 percent) and SBI MF (71 percent).

Superior Performance: Nippon's market share growth is driven by the superior performance of its funds. Analysis by Prabudas Leeladhar across Top-10 MFs suggests that weighted alpha for Nippon in the 1-year bucket materially improved from Feb-21, and Nippon’s schemes have consistently featured in Top-3 MFs since May-21. Performance in the 3-year and 5-year bucket has also been better, translating into improved net equity flows and market share gains. PL expects Nippon’s equity assets to outgrow the industry by 6 percent CAGR over FY24-26E driven by a healthy 26 percent CAGR growth in equity corpus, backed by its superior performance.

Robust Retail Franchise: Prabudas Leeladhar analysts also pointed out that Nippon has a relatively stronger retail franchise, meaning money tends to be stickier, unlike institutional money that can move out more easily. Analysts also expect Nippon to maintain its margins or even improve them based on the steady rise in its assets under management, especially equity assets. The rise in assets itself is likely to be sustained by the performance of its schemes.

Valuation: For the combination of growth and quality of assets Nippon has, it is relatively undervalued compared to HDFC AMC. Nippon has an ROE of 21, compared with ROE of 29 for HDFC AMC, but the former is available at an P/E of  36 compared with 44 for HDFC AMC.

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