HDFC Securities Bullish On Mid Cap Aditya Birla Group Stock, Sees 42% Gains, Buy

HDFC Securities is bullish on the stock of Aditya Birla Sun Life AMC Limited (ABSLAMC), a mid-cap Asset Management Company (having a market cap of Rs 11,829.60 crore). The brokerage sees potential gains of up to 42% with a target price of Rs 580 apiece.

Stock Outlook & Returns on Investments

ABSLAMC's stock today opened at Rs 408 per share, currently trading at Rs 409.45 per share, 0.40% up from its previous close of Rs 407.80 per share. The stock hit the 52-week low on November 01, 2021, at Rs 665 and the 52 week high on June 17, 2022, at Rs 375, respectively.

The stock has declined 3.82% in a week, whereas, over the past 1 month, it declined 9.62%. The stock in 3 months has fallen, giving 3.68% negative returns. In the past 1 year, the stock declined further by 36.96%. The stock made its debut on the stock exchange in October 2021. Since its listing, it has given 41.24% negative returns on investments.

Overall yields remain soft

Core revenue clocked a 3% beat at INR3.11bn (- 6%/+2% YoY/QoQ). Core revenue yields improved 0.76bps QoQ to 44bps, owing to improved equity mix in MF QAAUM (42.1%; +65bps QoQ) and better yields in the equity segment. Staff costs, at INR712mn (+10% YoY, +10% vs. estimates), continue to race ahead of top line growth, dragging operating leverage and driving core operating profits to INR1.73bn (+1% QoQ). MTM impact from higher yields resulted in stronger treasury income at INR766mn (vs. estimates at INR50mn), driving APAT higher to INR1.92bn (+86% QoQ).

Concerns and outlook

Equity market share dipped a further 26bps QoQ to 6%, whereas liquid market share improved 41bps to 10%. We remain wary of the heightened competition among AMCs coupled with rising pressure on yields, owing to aggressive distributor payouts and gradual replacement of the old book by the new book. The management stated that the company has two fixed-income products in the pipeline, which are likely to be accretive for yields. Although the company has a slew of 10 NFOs in the pipeline on the passives front, the environment continues to be extremely competitive.

Elevated staff costs offset yield expansion

ABSLAMC reported a soft quarter, with the top line growing 2% QoQ (+3% vs. estimate), primarily due to better equity yields; however, rising opex intensity continued to drag margins. Given the rising competitive intensity, ABSLAMC's ability to arrest equity market share erosion in the near-to-medium term remains an uphill task.

HDFC Securities recommends buy with Rs 580 target price

The brokerage said, "We are positive about ABSLAMC's strong and diversified distribution network; however, we are concerned about the sustained pressure on yields in the medium term. We lower our FY23E/24E/25E earnings by 6.8/1.2/4.1% to factor in soft equity flows, higher staff costs, partially offset by stronger treasury income. We factor in 7.3/7.8% revenue/operating profit CAGR respectively, on the back of healthy AUM growth, partly offset by lower yields. We maintain BUY with a lower TP of INR580 (implying 21x Sep-24E NOPLAT + Sep-23E cash and investments)."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.