This Rs 4.5 lakh crore asset supervisor is losing market share, but stock is up 100%

This Rs 4.5 lakh crore asset supervisor is losing market share, but stock is up 100%

This Rs 4.5 lakh crore asset supervisor has lost market share across segments in recent months, and has viewed income fall sequentially for six straight quarters until September, 2019.

But the inventory has rallied 126 per cent year-to-date.

Analysts now anticipate returns from the stock to average after a steep rally, even as valuations, on the face of it, appear to be at a steep discount to the closest listed peer.

The stock is Nippon India Mutual Fund (erstwhile RelianceNSE -1.66 % Nippon Life AMC or RNAM).

But peer evaluation makes the stock seem cheap. Nippon India Mutual Fund instructions a market capitalisation of Rs 22,000 crore, which is 5 per cent of the whole asset underneath administration (AUM) of Rs 4,53,517 crore that the AMC had as of September 30.

Rival company HDFC AMC instructions a market capitalisation of Rs 76,000 crore, which is 21 per cent of the property it manages.

One principal latest trigger for the Nippon India Mutual Fund inventory was once a trade guard at the enterprise after Japanese partner Nippon Life acquired a controlling stake of seventy five per cent in the asset supervisor from erstwhile promoter Reliance CapitalNSE -0.73 %, thereby eliminating an overhang over promoter’s economic muscle.


Mumbai brokerage Sharekhan project 12-15 per cent in addition upside for the stock. It said the massive bargain vis-à-vis HDFC AMC partly reflects the slowdown in AUM growth, which it feels could be the end result of inner challenges such as exits of HNI and debt buyers and publicity to the erstwhile promoter group’s debt.

The working revenue trajectory is dropping steam. For Nippon India Mutual Fund, core revenues fell 8 per cent sequentially in September quarter against HDFC AMC’s 1.3 per cent decline. Growth in fairness AUM, which bills for 75 per cent of income earlier than tax (PBT), fell 2.5 per cent YoY for the quarter towards an 8 per cent upward shove for the listed peer.

Nippon India is already busy fixing things. “With the resumption of increase and strengthening of the stability sheet, there is headroom for bridging this valuation gap, which can be a trigger for re-rating of the stock,” Sharekhan said.


Nomura India facts suggests the AMC lost some 460 basis points market share in the debt segment to 7.7 per cent in September on a YoY foundation and one hundred basis factors market share in the equity phase to 8.1 per cent in final 12 months due to the promoter transition.


In its heydays in 2007, the AMC – then recognized as Reliance Capital Asset Management – was once India’s top non-public area asset manager. By 2011, it lost the top spot to HDFC Mutual Fund. Since March 2018, its share of the mutual dollars market slipped to single digits.


Financial hassle at the overleveraged Reliance Group affected its enterprise till the Nippon Life takeover.

Also, the industry itself has been facing some have faith deficit following a credit crisis in debt market and the misery that some fund houses confronted because of their exposure to weak non-banking finance groups (NBFC), main to investors’ aversion in the direction of debt funds.

The Nippon administration believes given the promoter firm’s international relationships and reputation amongst institutions, it would be able to regain misplaced market share.

But there is no timeline.

“While Reliance Capital’ exit augurs well for the AMC in the lengthy run, a lot of the positives appear priced in with moderation in overall performance in a challenging macroeconomic environment. Structurally, the AMC enterprise in India stays a long-term growth story due to low penetration, which will be really helpful for Nippon India MF. Axis Capital is factoring in a 12 per cent mutual fund AUM increase and decrease tax rate for the industry over FY19-FY22.

The brokerage’s rate goal of Rs 360 on the Nippon Indian stock has already been breached. On Tuesday, the stock traded at Rs 359 on BSE.

JM Financial said valuations of AMC stocks, be it Nippon India or HDFC AMC, imply aggressive AUM boom estimates over the next 10 years. These estimates suggest a 20 per cent profits CAGR for Nippon India and 27 per cent for HDFC AMC.

“It is pertinent to word that HDFCAMC and /Nippon India delivered 19 per cent and eleven per cent boom (CAGR), respectively, over FY09-19. As a result, we see low margin of safety, thinking about the reality that AUM and salary for this business continue to be cyclical,” it said.

The brokerage has a ‘hold’ rating on Nippon India with a rate goal of Rs 340, valuing it 34 times FY21 EPS. This suggests a viable draw back for the stock.

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