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Nirmal Bang
Nippon Life AMC (Buy)
Target: ₹400
CMP: ₹361.10
Cost control and higher offshore contribution to support earnings Nippon Life India AMC (NAM) reported 1.5 per cent y-o-y growth in PAT for Q3-FY21 despite revenue declining 11.4 per cent. The earnings performance was driven by a sharp decline in operating expenses; EBITDA was flat. Since the takeover by Nippon Life (Japan), we have seen significant recovery in business flows along with an improving cost structure. The company’s consistent focus on cost optimisation and rationalisation over the last 6-8 quarters has resulted in reduction across various expense heads.
Over our forecast period, the negative impact of increase in performance-linked incentives should be offset by reduction in ESOP expenses (expected to be negligible in FY23). In post-Covid times, digital marketing initiatives are expected to be more effective and optimal.
On the revenue front, we expect MF fees to grow at 3.5 per cent CAGR over FY20-23. Contribution from highly profitable offshore mandates is also likely to increase (29 per cent CAGR FY20-23E) on the back of growth in international flows.
Equity revenue is expected to recover strongly over FY21-23 on the back of the strong market performance and a likely pick-up in flows as the retail sentiment turns positive. We value the stock at ₹400 based on 32x FY23 EPS, implying an upside of 16 per cent.
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