HDFC Securities is bullish on Reliance Nippon Asset Management has recommended buy rating on the stock with a target price of Rs 200 in its research report dated January 23, 2019.
HDFC Securities' research report on Reliance Nippon Asset Management
RNAM reported a muted 3QFY19 with revenues/PAT at Rs 3.5bn/1.1bn (-12.3/-17.0% YoY). AUM growth was sluggish (-3.0/-3.5% YoY/QoQ) owing to volatile market conditions and weaker equity inflows. Revenues and other operating expenses declined 12.3/10.5% YoY and 26.4/12.9% QoQ, on account of regulatory changes which resulted in payment of commissions directly from scheme accounts. Consequently, EBIT fell 7.7/15.4% YoY/QoQ to Rs 1.1bn reflecting lower profitability despite 9.8% higher equity AUM. This is dismal compared to 24.8% rise in HDFCAMC’s EBIT to Rs 3.2bn on a growth of 1.8% in its equity assets.
Outlook
We are concerned about RNAM’s ability to grow profitably as despite equity AUM growth of 9.8%/0.4% YoY/QoQ, the company’s EBIT has declined 7.7%/15.4% YoY/QoQ. We are compelled to reduce our FY19E/20E/21E EBIT estimates by 7.0%/11.2%/14.1%. We value RNAM on a DCF-based multiple of 20.9x on its FY21E NOPLAT and add value of investments and cash to arrive TP of Rs200 (+28.3%). Our TP implies a FY20/21E P/E of 23.6/20.2x.
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