Target: ₹825

CMP: ₹666.65

UTI AMC is one of the largest AMCs in India with total AUM of ₹13.5 lakh crore as of March 2022, with a CAGR of 39 per cent during FY18-22 offering a wider product portfolio serving both retail and institutional clients.

Over the last two years, several leading players in the MF industry lost market share to mid and smaller players. However, UTI AMC has been able to maintain its market share, likely due to better scheme performance. In FY22, its market share on total MF QAAUM basis improved to 5.8 per cent in March compared to 5.6 per cent in March 2020.

We value UTI AMC using a 2-stage dividend discount model given its high dividend payout ratio and minimal capital requirement needs. We assume a dividend payout ratio of 50 per cent for UTI AMC over FY23-24 and arrive at a target valuation of ₹10,500 crore, resulting in a target price of ₹825 (implying a FY24 PE of 15.5x).

As per our estimates, owing to operating leverage, UTI AMC’s RoE will improve from 15.6 per cent in FY22 to 17.7 per cent in FY24. The main risks to our rating and target price are a decline in the Indian equity market and further changes in regulations that could adversely impact the revenue of the company.