Target: ₹610

CMP: ₹492.10

We initiate coverage on Nippon Life India Asset Management with ‘Buy’ rating given consistent equity outperformance translating to improved net flows and in-turn market share gains; focus on stronger investment process and risk management; and robust retail franchise as indicated by enhancing SIP AUM and healthy addition of unique investors plus folios over FY19 to 9MFY24.

Significant under-penetration in Indian MF industry suggests strong growth prospects of AMC space which could benefit NAM (4th largest player).

We expect healthy core earnings CAGR of 23.4 per cent over FY24-26 led by higher than industry equity AAuM growth and operational efficiency.  Basis superior equity performance and further market share gains we expect NAM equity AAuM to outgrow the industry by 6 per cent CAGR over FY24-26.  Driven by healthy equity AAuM CAGR of 26 per cent, we see operating leverage to play out; despite a 2bps reduction in AMC yields, revenue CAGR (17.7 per cent) is likely to surpass that of opex (9.3 per cent).  Hence, core income CAGR is expected at 23.4% over FY24-26E with core profitability maintained between at 26-27 bps (pre-tax).

The stock is valued at 25x FY26E core EPS implying 32 per cent discount to HDFC AMC.

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