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Suresh Krishnamurthy

Chennai , Dec.19

PROFITS of asset management companies have risen sharply in the first half of 2003-04. Rising fee income without any corresponding increase in expenses has contributed to the profit surge.

With assets under management of mutual funds rising by an average of about 50 per cent, economies of scale have led to even higher growth in profits, says Mr Milind Barve, Managing Director, HDFC Asset Management Company. Top asset management companies such as HDFC, Franklin Templeton and Birla Sun Life recorded profits ranging between Rs 10 crore and Rs 15 crore in the year-ended March 2003.

According to Mr Ved Prakash Chaturvedi, Chief Executive Officer, Tata TD Asset Management, growth in profits for the industry has been about 60 to 70 per cent. While refusing to disclose the profits of Tata Mutual Fund, Mr Chaturvedi added that the growth has been in line with the trend.

Some asset management companies such as HDFC and Prudential ICICI have managed to report even higher growth. In the case of Prudential ICICI, profits of Rs 10.76 crore in the first half of 2003-04 is about 90 per cent of the profits of Rs 12.15 crore recorded in 2002-03. In the case of HDFC, profits of Rs 16.24 crore for the first half has exceeded profits of Rs 14.17 recorded in the whole year 2002-03.

HDFC Asset Management Company has also benefited from the acquisition of Zurich India's assets during the year.

The rising proportion of equity funds under management has also helped boost profitability. Profits on equity funds work out to about 1 per cent on assets under management and about 0.5 per cent on debt funds under management, said Mr Barve.

According to Mr Chaturvedi, in terms of incremental growth in profits, contribution of equity and debt funds have been equal.

When queried as to the sustainability of the trend, Mr Chaturvedi said that a rate of growth of about 25 per cent in assets under management was possible. A disproportionate rise in profits, similar to what was seen in first half of 2003-04, was however not likely, he added.

This was because of expected increase in costs such as for distribution for products.

Fixed costs are also set to rise for HDFC with a hike in salary on the cards. Mr Barve also reflected that every year in March, assets under management come down by 10 to 20 per cent.

He did not expect this year to be any different. Beyond the next six months, he said factors such as market share, addition to retail customer base and geographic reach was as important as rate of growth.

The rise in profits and prospect for robust growth is however not likely to lead to a reduction in costs charged to mutual fund schemes.

Mr Barve said that incremental costs in the case of income funds would be about 1.5 per cent of under management. If assets increase, then total costs charged would come down.

Mr Chaturvedi said that the rise in profits does not mean that profitability in the industry is abnormal.

Profitability is only normal and the return on networth will stabilise between 15 and 20 per cent, he added.

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