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.