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JM Financial
UTI AMC (Buy)
Target: ₹700
CMP: ₹492.05
We believe UTI Asset Management Co’s strong brand recognition and retail presence, continued improvement in equity fund performance and expected improvement in profitability driven by costs moderation makes it one of the preferred plays to capitalise on the financial savings opportunity in the country.
UTI AMC’s asset under management bounced back to over ₹1.5 lakh crore, leaving behind the hiccups faced in FY19-20 (due to defaults by some large corporates and market correction due to Covid-19 fears). Further, we see AUM growth momentum increasing aided by improving equity fund performance and healthy performance on the ‘sticky retail’ equity inflows (SIP) front; SIP market share increased to 3.2 per cent in Q2-FY21.
UTI AMC’s core operating profitability historically was closer to that of NAM’s (except FY20). As it reverts to trend profitability, we expect valuations to get re-rate upwards in the near-to-medium term, aided by a) robust AUM growth driven by superior equity fund performance and b) improvement in operating profitability driven by cost moderation.
We expect UTI AMC to record 21 per cent AUM CAGR and 26 per cent earnings CAGR over FY20-23E, along with 50 per cent dividend payout ratio, which would drive stock returns. Sharp deterioration in incremental fund performances and/or prolonged period of outflows are key risks..
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