Mutual fund to contribute 75% of the revenues in coming years – Nippon AMC
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Excerpts of an interview with Mr. Prateek Jain, CFO of Nippon Life India Asset Management (NAM-INDIA) with The Economic Times on 27th April 2022:
- The company’s mutual fund AUM market share has gone up from 7.1% in FY21 to ~7.4% in FY22, with a growth of 26 bps.
- Its 8-10 equity schemes are in the top quartiles and 10-14 fixed income schemes are in the top two quartiles. The management expects higher growth to come from these schemes in the upcoming quarters.
- In FY22, the company saw the addition of almost 32 mn folio in the industry. The company added around 7 mn folios.
- Jain believes that the company has created a moat in terms of its physical and digital presence which attracts retail clients. Due to this, he believes that one in every three people invest with Nippon India Mutual Fund.
- People have started investing through mutual funds once they started going back to work, post lockdown. This is happening as more people are opting for direct investment.
- With increased digital penetration and investors systematically investing in mutual funds, new investors will get added and equity assets through retail participation will keep increasing.
- In the last 10 years, the industry has grown from AUM Rs 6,600 bn in 2012 to around Rs 38,000 bn. Mr. Jain believes that the industry is still underpenetrated with AUM to GDP ratio of 18%, whereas in matured markets, AUM to GDP ratio is around 80. He believes that the industry may see 5 times AUM growth in the coming decade.
- Considering SIP as one of the measurement scales for the industry growth, the SIP was about Rs 70,000 mn 2 years ago during the covid lockdown. It has increased to Rs 120,000 mn today.
- The company expects the alternatives, ETF, and other advisory opportunity businesses together to contribute to 25% of the revenue. Rest 75% of revenue will come from the mutual fund business.
- The company saw 58% of its purchases happening digitally and it has well-placed digital assets and has partnered with all the key aggregators and market players.
Asset Multiplier Comments
- Nippon AMC has been steadily gaining market share on the back of expansion of ETF and SIP segments, its penetration in B-30 Cities gives it an edge over its competitors as major expansion is expected to be driven from non-Metro cities.
- The SIP segment is sticky, because the inflows are impacted the least and major outflows don’t happen due to the discipline of investors, rising share of SIP AUM bodes well for the company as it insulates the company from sudden market corrections and shocks.
Consensus Estimate: (Source: market screener website)
- The closing price of Nippon AMC was ₹ 321/- as of 28-Apr-2022. It traded at 23x/22x the consensus earnings estimate of ₹ 14/15 for FY23E/FY24E respectively.
- The consensus target price of ₹ 427/- implies a P/E Multiple of 28x on the FY24E EPS estimate of ₹ 15/-
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