HDFC Asset Management Company Ltd Q3 FY24 Earnings Conference Call Insights

Key highlights from HDFC Asset Management Company Ltd (HDFCAMC) Q3 FY24 Earnings Concall

• AUM Milestones
  • The mutual fund industry reached INR50 trillion AUM as of December 2023, a 27% YoY growth.
  • Nifty 50 returned over 20% in the last year while actively managed equity funds grew 29%.
  • Equity funds now constitute over 50% share of total industry AUM at INR25.9 trillion.
  • SIP contributions reached INR9.6k crore in December 2023 with total SIP AUM crossing INR10 lakh crore.
• HDFC AMC Performance
  • HDFC AMC total AUM crossed INR5.5 lakh crore, up 24% YoY, with 11.2% industry market share.
  • Actively managed equity AUM was INR3.47 lakh crore, up 50% YoY vs 39% for industry.
  • Systematic flows grew 53% YoY to INR26.3 billion in December 2023 with 6.81 million transactions.
  • Average asset mix remains equity heavy at 61% vs 53% industry average.
  • Saw over 50% growth in SIP transactions value and volume.
• Financial Performance
  • Revenues from ops grew by 20% YoY to INR671 crore driven by higher AUM fees and other income.
  • Operating profit rose by 25% YoY to INR496 crore with stable margins of 73 bps.
• Debt and Liquid Fund Market Share
  • HDFC AMC losing some market share in debt and liquid funds recently.
  • Were late to launch debt index funds, awaiting regulatory clarifications.
  • Liquid funds market share has fluctuated based on market conditions.
• Equity Funds Market Share Growth
  • Gained almost 100 bps equity funds market share over last 12 months.
  • Strong long-term performance track record and product range.
  • Significant growth potential remains in categories like large/mid caps.
• HDFC Bank Distribution
  • HDFC Bank share of HDFC AMC AUM has declined recently.
  • However, HDFC Bank selling more in absolute terms.
  • Flow share remains higher than closing AUM share.
  • Other distribution channels growing faster like direct plans.
  • Overall HDFC Bank flow share higher than closing AUM share.
• Margins and Economies of Scale
  • Margins declined due to sliding scale TER structure despite better asset mix.
  • As AUM grows, TERs decline based on SEBI formula, but higher AUM offsets lower TER.
  • Regulated skin-in-the-game rule helps AMCs benefit from market rallies.
  • Mandated to invest a percentage of AUM as skin-in-the-game, boosting other income.
• Direct Plan Performance
  • Direct plans contribute 23% of closing AUM, higher for flows.
  • Driven by lower TER and investors choosing direct route.
• Alternative Investments
  • Launched an AIF fund of funds with INR8 billion commitments.
  • Invested in 9 selected AIFs, looking to raise more capital.
  • Adding senior resources to build private credit capability. Aims to launch private credit AIF products in 2H 2024.
• Asset Mix and Margin Outlook
  • No specific target set for equity share of AUM mix.
  • Accept inflows across all products – equity, debt, liquid, hybrid.
  • Equity share is expected to continue to increase over time due to higher mark-to-market gains and systematic flows.
  • Hard to predict when margin dilution will bottom out.
  • New lower margin AUM has less impact on larger AUM base.
  • Monthly commissions now seem to be at more acceptable levels, and in turn operating leverage should help offset further dilution.
• Investor Growth Outlook
  • Significant room for further penetration despite 4.2 crore investors.
  • 50 crore PAN cards issued show much larger target market.
  • Regulator talking of making INR250 SIPs viable to expand reach.
• Rural Penetration
  • Don’t disclose rural vs. urban split, but cover 99% of pin codes.
  • 173 of 253 branches in B30 towns beyond top 30 cities.
  • Digital finance growth in India aiding further mutual fund penetration.
  • Significant runway for growth in smaller towns and villages.