Buy UTI Asset Management Company; target of Rs 770: Prabhudas Lilladher

Prabhudas Lilladher's research report on UTI Asset Management Company

UTIAMC saw a weak quarter as operating yields at 13bps missed PLe by 5bps due to revenue miss of 5% and opex being higher to PLe by 9%. Other opex spike of 27% QoQ was due to one-time expenses, which is expected to normalize. Equity yields (75bps) declined by 7-8bps YoY in FY23; however, yield contraction in FY24/25E could be lesser than FY23 as lower yielding AuM now makes up for 80% of equity AuM. On a blended basis, we are factoring an average 2bps fall in yields in FY24/25 (5bps in FY23). We cut core earnings by 11% in FY24/25E as we trim revenue by ~4.0%. Valuation is undemanding at 11x on FY25E core EPS and we maintaining multiple at 14x on FY25E core EPS.

Outlook

We see two key levers for stock to re-rate beyond 14x, 1) distribution of excess cash to investors and 2) TATA AMC buying a majority stake in UTIAMC. We lower our TP from Rs830 to Rs770. Retain ‘BUY’.

For all recommendations report, click here