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.