HDFC Asset Management Company Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from HDFC Asset Management Company Ltd (HDFCAMC) Q2 FY24 Earnings Concall

• Industry Growth Trends
  • Quarterly average AUM reached INR47 trillion, up 20% year-over-year.
  • Actively managed equity funds near 50% of total AUM at INR23.1 trillion, up 26%.
  • Debt funds QAAUM surged to INR10.3 trillion.
  • B30 category AUM steady at 17% of total and 27% of equity AUM.
  • SIP flows totaled INR471 billion, 27% of gross equity flows.
• Financial Performance
  • Quarterly average AUM crossed INR5 trillion, up 22% year-over-year.
  • Market share at 11.2% overall and 12.5% excluding ETFs.
  • Actively managed equity AUM up 40% year-over-year, outpacing industry growth of 28%.
  • Individual investors account for 68% of AUM, higher than industry at 58%.
• Key Business Updates
  • Unique investors reached 7.9 million, 1 in 5 industrywide.
  • Processed 5.86 million systematic transactions in September, up 50% year-over-year.
  • Launched new sectoral/thematic funds in consumer, healthcare, technology.
  • Wholly-owned Gift City subsidiary secured approvals, to launch funds soon.
  • Revenue grew 18% year-over-year, operating profit up 20%.
• SIP Flow Growth
  • SIP flows for industry grew 36% YoY to INR 16,000 crore, while for HDFC AMC SIP flows grew 56% YoY.
  • Growth driven by performance improvement, distribution expansion, marketing, digital initiatives.
  • SIP flows make up large share of flows for HDFC AMC and industry.
• Expense Ratios and Yields
  • HDFC AMC equity yield is 67 bps including index funds.
  • Flow yields lower than book yields due to industry dynamics.
  • Pace of yield dilution has slowed due to rationalization of distribution costs.
  • Recent NFOs launched at higher margins vs historical.
• Operating Expenses
  • Employee expenses grew 11% YoY, 8% CAGR over pre-COVID levels.
  • Other expenses grew 22% YoY but only increased ~INR 12 crores in absolute terms.
  • Increase in expenses driven by higher travel, NFO-related costs, marketing
• Market Share Gains
  • HDFC AMC has gained market share across channels and products over the past few months.
  • Seeing material improvement in engagement with HDFC Bank post-merger.
• Managing Costs Amid Business Expansion
  • Operating expenses as percent of AUM down due to higher AUM growth vs expense growth.
  • People cost inflation at 10-12% despite investments in distribution capabilities.
  • Overall costs well managed given scale of operations and offices, employees, AUM serviced.
• Utilization of Cash Balances
  • Increased dividend payout ratio to 72% in FY23; expect further increases.
  • Evaluating inorganic growth opportunities.
• Approach to Passive Funds
  • Do not see active to passive asset shifts like in some global market.
  • Optimistic about growing select ETFs, though some market share constrained by regulation.
• Adding Unique Investors
  • HDFC captured 40% of new unique investors added to the mutual fund industry.
  • Strong performance across categories combined with distribution reach, marketing and digital efforts have helped gain investors.
• Outlook
  • Focus remains on gaining higher market share across channels through performance, products, distribution and marketing.
  • Long-term opportunity remains attractive with low penetration of mutual funds in India.