Buy HDFC Asset Management Company; target of Rs 3900: Prabhudas Lilladher

Prabhudas Lilladher's research report on HDFC Asset Management Company

We upgrade core earnings for by 10.5%/15.1% led by strong equity MAAuM growth in FY24 YTD (+46% for HDFC AMC vs +37% for industry). The company saw a good quarter yet again. QAAuM was a bit lower; revenue was in-line suggesting tad better realization at 48.7bps (49bps in Q2’24). Change in TER slabs for 61% of active equity was offset by increase in equity mix by 2.9% QoQ and fall in debt/liquid, protecting blended yields. Equity performance within 1-yr and 3-yr buckets remains best-in-class which has resulted in strong net flows’ market share of 23% over Apr-Nov’23 (vs 8.6% in FY23). Hence equity market share at 12.6% further expanded (+26bps QoQ).

Outlook

Over FY23-26E we see core PAT CAGR of 18.0% (earlier 12.5%). Stock is trading at 34.4x; rolling forward to FY26E core EPS we raise multiple to 39x from 35x (5yr avg. of 40x) since HDFC AMC should continue to deliver better than industry equity returns. Our TP rises to Rs3,900 from Rs3,000. Retain BUY.