On Thursday, Nomura/Instinet adjusted its outlook on HDFC Asset Management (NS:HDFA) Co Ltd (HDFCAMC:IN), raising the price target to INR 5,250 from INR 5,000 while retaining a Buy rating on the stock. The firm based its decision on HDFC AMC's strong performance, noting a significant increase in operating profit and assets under management (AUM).
HDFC AMC's operating profit surged to INR 6.9 billion, marking a year-over-year increase of 47% and a quarter-over-quarter rise of 19%, surpassing Nomura/Instinet's estimates by 4%. This boost was attributed to higher operating revenue coupled with a reduction in operating expenses. Additionally, other income for the company was reported to be robust at INR 1.7 billion, exceeding expectations by 14%.
Despite an increase in the tax rate due to changes in capital gains tax laws, HDFC AMC's profit after tax (PAT) climbed to INR 5.8 billion, a 32% improvement year over year and 2% above the firm's estimates.
The company's quarterly average AUM experienced a substantial growth of 45% year-over-year and 13% quarter-over-quarter, with the equity segment in particular expanding by 65% year-over-year and 15% quarter-over-quarter.
The operating revenue yields for HDFC AMC improved to 47 basis points, up from 46 basis points in the previous quarter and higher than the 45 basis points that were projected. A better equity mix and the rationalization of commission expenses drove this improvement.
Based on these results, Nomura/Instinet has increased its AUM growth projections, citing continued strong inflows into the equity segment and a buoyant equity market.
Nomura/Instinet now anticipates an AUM compound annual growth rate (CAGR) of 22% from FY24-27F, an increase from the previously estimated 20%. Consequently, the firm expects an approximate 5% earnings upgrade for HDFC AMC over FY26-27F.
InvestingPro Insights
HDFC Asset Management Co Ltd's strong performance, as highlighted in the article, is further supported by data from InvestingPro. The company's revenue growth of 120.79% over the last twelve months as of Q1 2025 aligns with the significant increase in assets under management (AUM) mentioned in the report. This impressive growth is also reflected in the quarterly revenue growth of 118.02% for Q1 2025.
The company's profitability is evident from its adjusted operating income of 9,915.49 million USD and an operating income margin of 31.05% for the last twelve months. These figures underscore HDFC AMC's ability to generate substantial profits from its operations, which is consistent with the 47% year-over-year increase in operating profit noted in the article.
InvestingPro Tips provide additional context to HDFC AMC's market position. The company is described as a "Prominent player in the Capital Markets industry," which supports Nomura/Instinet's positive outlook. Moreover, the tip indicating that HDFC AMC is "Trading near 52-week high" aligns with the stock's strong performance and the raised price target.
It's worth noting that InvestingPro offers 13 additional tips for HDFC Asset Management Co Ltd, providing investors with a more comprehensive analysis of the company's financial health and market position.
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