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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.
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