We keep our MF AUM growth estimates unchanged at +1%/+12%/+15% for FY20/21/22E. Our thesis is that post arresting and reversing some of the decline in the liquid and other debt funds in H2FY20, the AUM growth should normalize to 12-15% from FY21 onwards. Also, we are building in an increasing share of equity-oriented schemes, which is higher margin and hence more profitable. We retain our revenue estimates but marginally tweak our expense assumptions for FY22E. As a result, our FY22E PAT is revised upwards by ~1% to Rs7.69bn. From a stock investment perspective, we retain our ACCUMULATE rating, valuing the stock at Rs370, based on 32x Sept-21E EPS.
Reliance Nippon Life Asset Management Limited (RNAM) reported its 2QFY20 results with the key pointers being: (1) Institutional and HNI businesses continue to be of concern, retail continues strong (2) Share of equity increases 100 bps QoQ to 43%. (See comprehensive conference call takeaways on page 2 for significant incremental colour). Per se, on the key financials, RNAM posted MF AUM decline of 16% YoY at Rs1,886bn, Net revenue decline of 23% YoY at Rs3,002mn, EBITDA growth of 4% at Rs1,435mn and PAT growth of 21% YoY at Rs1,367mn. We have revised our estimates for FY20/FY21/FY22 and retained Accumulate rating on RNAM, revising our target price to Rs323 (from Rs281 earlier), valuing the stock at 28.0x H1FY22E P/E.
Cost control shown in Q4FY19 is encouraging and if continued will help sustaining margins. Additionally, the exit of ADAG as promoter on stake sale to Nippon Life is a positive, which we believe will aid fund raising from HNIs and institutions. With the normalization of revenues and opex recognition as per the new SEBI norms, we expect margins to be maintained and yields to be stable. However, overhang from redemption risk lingers. We are factoring in ~11% AUM growth for FY20/21E. We recommend Hold with a revised target price of Rs238, at 25x FY21E EPS.
Led by a 47.1/25.6% YoY/QoQ drop in other expenses RNAM reported an EBITDA of Rs 1.14bn (+4.5/19.7% YoY/QoQ) and 17.7% above our estimates. We expect exit of ADAG to positively impact both performance. We value RNAM at 26x on its FY21E NOPLAT + value of investments to arrive at TP of Rs 254 (+29.7%) i.e. 5.5% of FY21E AUM.