HDFC Asset Management Company Ltd Q1 FY25 Earnings Conference Call Insights

Key highlights from HDFC Asset Management Company Ltd (HDFCAMC) Q1 FY25 Earnings Concall

• Industry Growth
  • Mutual fund industry AUM reached INR61 trillion, representing a seven-fold increase over the last 10 years.
  • Industry size grew from INR8 trillion in March 2014.
  • Over INR10 trillion added in the last six months alone.
• Equity Fund Inflows
  • June 2024 marked the 40th consecutive month of positive net flows for equity-oriented funds.
  • Actively managed equity funds saw net inflows exceeding INR1 trillion in Q2 2024.
  • INR262 billion came from 17 equity-oriented New Fund Offerings.
• Debt Fund Turnaround
  • Debt-oriented funds, including index funds, saw net inflows of INR709 billion, marking a turnaround after three consecutive quarters of outflows.
  • Debt ETFs contributed an additional INR20 billion in net inflows.
  • Total net new flows into debt reached INR729 billion.
  • Liquid funds added INR510 billion during the quarter.
• Company Performance
  • Company surpassed INR7 trillion in Assets Under Management.
  • Asset mix tilted towards equity, now at 64.3% on a quarterly average basis.
  • Actively managed equity funds grew to INR4.4 trillion, with a 13% market share.
  • Debt and liquid AUM increased by 9% and 14% quarter-on-quarter, respectively.
  • Total income reached INR9,483 million.
  • Revenue from operations grew by 35% year-over-year to INR7,752 million.
  • Operating profit increased by 40% year-over-year.
  • PAT grew by 26% year-over-year to INR6,039 million.
• Investor Trends
  • Monthly SIP flows reached INR213 billion in June 2024.
  • Industry added 2.3 million new unique customers in the quarter.
  • Company’s unique investor count reached 10.7 million, representing 23% market penetration.
  • Company added 1.1 million unique investors during the quarter.
  • Systematic transactions for June 2024 stood at INR32.1 billion for the company.
• Employee Expenses
  • Employee costs rose due to year-end increments and headcount increase of 280 people.
  • Investments in learning, development, and employee engagement contributed to the increase.
  • Q1 saw annual increments rolled out and initial valuations for benefits like leave encashment.
  • A large employee engagement event was held in Q1.
  • Annual employee cost increase expected to be 10-12% unless large expansion occurs.
• Other Expenses Growth
  • Increase mainly due to general business-related expenses.
  • New fund offer expenses contributed significantly.
  • KYC-related expenses for mutual funds increased.
  • Outsourced service costs went up.
  • Manufacturing NFO during the quarter incurred extra costs.
  • NFO expenses expected to be offset by higher fees from additional AUM in the future.
• Equity AUM Proportion
  • Equity-oriented assets account for about 64-65% of total AUM.
  • Equity proportion likely to increase faster due to higher mark-to-market gains compared to other asset classes.
  • Large SIP book, with bulk of flows into equity funds, contributes to increasing equity proportion.
  • Company aims to grow all segments of business, including fixed income and others.
• New Fund Offerings
  • Recently launched a successful manufacturing fund NFO.
  • Product bouquet considered mostly complete, covering both active and passive sides.
  • Focus on consolidating position in existing funds and aiming for top three positions across categories.
  • Few additional products may be introduced, but no major expansion planned.
• Branch Expansion Approach
  • Focus on B-30 locations with lower costs and high growth potential.
  • Branch locations chosen based on AUM potential and distribution needs.
  • Quick breakeven expected for new branches.
  • HDFC Bank’s branch network considered when planning expansion.
• HDFC Bank Partnership
  • Dedicated senior resource oversees HDFC Bank relationship.
  • Strategic mapping of HDFC Bank branches and clusters.
  • Increased alignment and engagement across levels and functions.
  • Management sees significant opportunity in HDFC Bank’s distribution network.
  • Independent operations, but considering HDFC Bank’s presence in expansion plans.
• NFO Performance and Margins
  • Recent manufacturing fund NFO raised INR9,500 crores, surpassing expectations.
  • Lower TER and margins due to higher-than-expected collection.
  • NFO reduced overall equity margin by 0.5 basis points.
  • Expect margins to improve from year two due to stepped commission structure.
  • Post-NFO AUM at INR11,800 crores with continued healthy inflows.
• Other Expenses Growth
  • Company now guiding for 12-15% growth in other expenses, up from previous 8-10%.
  • Other expenses have grown at nearly 12% CAGR even pre-COVID.
  • Company manages over 7 lakh crores with 250+ branches for under 200 crores per quarter in expenses.
• Alternative Business Development
  • Company launched fund of funds investing in VCMP, crossing 1,000 crores in commitments.
  • Private credit team joined recently, with product launch expected in coming quarters.
  • Received approvals for GIFT City subsidiary to launch funds.
  • Management sees alternatives and international as focus areas for growth beyond mutual funds.
• Yield Trends
  • Company’s blended yields shrunk by about 2.5 basis points due to growth in equity AUM.
  • SEBI’s telescopic pricing formula impacts yields as AUM increases.
  • While yields may decrease, overall profits are expected to increase with AUM growth.
  • The pace of yield decline is expected to slow down in the future.
  • The steepness of the yield decline curve is anticipated to reduce.
  • Future yield declines may not be as significant as in the past, assuming similar growth patterns.