InvestorQ : Is it still worth buying the stock of HDFC Asset Management Company at the current valuations?
Ria Jain made post

Is it still worth buying the stock of HDFC Asset Management Company at the current valuations?

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Anu Biswas answered.
9 months ago
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Mutual fund AMC stocks have been the star performers in the last one year and the two listed AMCs; HDFC and Nippon have benefited immensely from this trend. During the period, the AUM of Mutual fund has also been inching up steadily. If you look at the AUM first, the fund house AUM grew by 12% to Rs.375,000 crore resulting in the overall revenues and the net profit of the HDFC AMC growing at a healthy clip. For the December 2019 quarter, revenues from the asset management business were up by 10%. At the same time, lower expenses and higher operating leverage resulted in the company’s earnings before interest, tax, depreciation and amortization increasing by 30% in the third quarter. With sharply lower taxes payable by corporates post September, HDFC AMC’s net profit also increased by a whopping 44% in the December 2019 quarter.

It needs to be remembered that HDFC AMC has maintained its lead in equity AUM, which improves the revenue mix since equity enjoys a much better TER. While HDFC AMC is the largest AMC in India, ICICI Pru AMC and SBI Mutual Fund are quickly catching on. Also valuations are extremely stretched if you look at AUM parity, which is close to about 18% of AUM even if you consider that the stock has corrected by nearly 20% in the last couple of months. While valuations are certainly stretched, there is certainly a scarcity factor that works in favour of HDFC AMC.

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