HDFC Asset Management Company Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from HDFC Asset Management Company Ltd (HDFCAMC) Q4 FY23 Earnings Concall

Q&A Highlights:

• [00:08:10] Swarnab Mukherjee with B&K Securities asked if the slight compression in yield for the first 9 months was due to product mix, debt mutual fund related taxes, or flows into the balance advantage fund. Navneet Munot MD said this quarter’s margin is explained by 2 fewer days of revenue vs. Dec. quarter, as well as some year-end adjustments for unabsorbed costs.

• [00:09:41] Swarnab Mukherjee with B&K Securities enquired why the trade receivables have remained around INR80 crores in the first half and have increased from close to half of that in the previous year. Navneet Munot MD said the trade receivables have changed its periodicity of payment, but is still received.

• [00:09:54] Swarnab Mukherjee of B&K Securities asked about any guidance on the charge on P&L related to the ESOP plan over the next couple of years. Navneet Munot MD said the estimated cost of the new ESOP program is between INR55-60 crores, of which 55% would be accounted for in this financial year, 30% in the following financial year, and the balance will be the year thereafter. An additional debit of around INR18 crores from existing ESOPs will also be included.

• [00:14:25] Kunal Thanvi at Banyan Tree Advisors asked on the impact of the regulator’s move from scheme-based TER to asset class based TER on AMC and specifically large AMCs with high equity books. Navneet Munot MD replied that SEBI’s main objective is investor protection and market regulations. The industry is engaging with the regulator to understand the implications of the regulations. Once the regulations are out, HDFCAMC will make sure that it is fair for all stakeholders.

• [00:16:37] Kunal Thanvi at Banyan Tree Advisors queried about the impact of the introduction of LTCG for long-term debt mutual funds on the industry and HDFC AMC. Navneet Munot MD answered that the finance department has proposed a new law where investments in debt mutual funds with less than 35% equity exposure will be taxed as short-term capital assets, effective April 1, ’23. Investments made before then will not be affected, and debt mutual funds still offer some benefits like tax on redemption, liquidity, flexibility, transparency and diversified portfolios.

• [00:19:17] Kunal Thanvi at Banyan Tree Advisors asked for the mix of corporate and retail shares in the industry or for a specific company for a period of 3 years or more. Naozad Sirwalla CFO replied that there is no single number which can provide a breakdown between corporate and retail investors, but there are many corporations that stay in the market for long periods of time and individuals that use it for shorter periods.

• [00:19:56] Devesh Agarwal with IIFL Securities asked why the company is losing market share in the debt segment despite gains in equity and SIP, and what challenges HDFCAMC face. Navneet Munot MD said HDFCAMC held a 13.3% market share in debt on QA AUM basis for March ’23, excluding debt index funds was 14.6%. HDFCAMC was a bit late to launch debt index funds but have been making up for it since then and its market share is stable or improving in other categories.

• [00:24:43] Lalit Deo from Equirus queried about the market share across different channels, such as the direct channel or a distributor-led channel, qualitatively improved following the improvement of major equity schemes’ performance, with some now ranking between quartiles 1 and 2. Navneet Munot MD answered HDFCAMC has seen increased investor numbers and systematic transactions, resulting in strong performance due to long-term track record and thematic funds.

• [00:29:57] Prayesh Jain at Motilal Oswal asked if there is a market for a hybrid investment option with 35-65% equity that continues to enjoy indexation benefits. Navneet Munot MD said funds will need to be sold based on their merits and not just because of their tax treatment. There are different funds available that meet the needs of all kinds of investors, depending on their individual time horizon, liquidity preference, return expectations, and risk appetite.

• [00:30:44] Prayesh Jain at Motilal Oswal asked about any specific reasons for the decline in overheads from Q3 to Q4 and is it sustainable. Naozad Sirwalla CFO replied that the drop from INR66 crores to INR58 crores was due to lesser NFOs business expense and certain CSR spend in Q3 versus Q4.

• [00:34:51] Dipanjan Ghosh of Citigroup enquired about any NFO spends related to equity in HDFCAMC product pipeline for FY24. Navneet Munot MD said HDFCAMC won’t be doing many NFOs, but have already done a lot of passive products on both ETF and index platforms. The company will continue to expand its sectoral and thematic portfolio, but there won’t be many more high spending NFOs.

• [00:36:29] Srinath V. from Bellwether Capital asked about the equity yield contraction YonY. Simal Kanuga Chief IRO replied that the company can’t give any information about the future effects of increased AUM on yields, as it tends to neutralize itself over time.

• [00:44:03] Kunal Thanvi with Banyan Tree asked how does HDFCAMC thinks about the cost structure in relation to AUM growth over the next 5 years, given that TER will decrease with size and cost as a percentage will determine profit growth. Naozad Sirwalla CFO replied that over a 3, 5, or 10-year period, the goal is for costs to grow at a slower pace than the AUM, which should lead to a decrease in basis points.