@zygo23554 Very valid points. One should read and consider this before investing in an AMC for long term. Request you to mention the source of above quotes wrt SEBI and RBI. Just wanted to know if this info is already available publicly or those are assumptions.
I think that current expense rations of MFs are at the ultra low base of MF investments. As the corpus picks up and given the runway it is going to go up multiple times there is no chance they will stay at the same 2-2.5% average rate. Either they will come down due to competition or more likely they will be brought down by the regulatory body as @zygo23554 said earlier in the post. Personally I agree this is a multi year story on business growth fund, if one is valuing with a decadal growth outlook, one should probably look at a 50% decline in expense ratios. Frankly as much as one may hope for it as a HDFC AMC investor, i think to expect that the industry will grow 10x and still charge the same from its customers is irrational.
Q1 FY19 Summary (source: capital market)
The company has reported 25% increase in net profit to Rs 205.2 crore in Q1FY2019, driven by a healthy 35 basis points (bps) rise in operating margin. Gross revenue increased 20% to Rs 501.1 crore, with operational income rising 21% to Rs 471.2 crore for the quarter.
Operating profit margin, which is the operating profit as a basis point of average asset under management (AUM), improved to 35 bps in Q1FY2019 from 32 bps in Q1FY2018.
Total AUM of the company increased 22% to Rs 3,01,100 crore end June 2018 from Rs 2,47,800 crore a year ago, helping it improve the market share to 13.1% in total quarterly average AUM across mutual funds, and retain the tag of the second largest private sector AMC.
AUM in actively-managed equity oriented funds surged 33% to Rs 1,46,500 crore from Rs 1,09,800 crore, with a market share of 16.4%.
The ratio of equity-oriented assets and non-equity oriented assets is 50:50, compared with the industry ratio of 42:58.
The company saw its individual accounts increasing 29% to 8.36 million, from 6.48 million in June 2017, while its individual monthly average AUM grew 26% to Rs 191000 crore end June 2018. The company services 8.4 million live accounts.
As much as 62.4% of its total monthly average AUM is contributed by individuals, compared with 52% for the industry.
SIPs which continue to be a strong pillar of growth for the industry saw the company process 3.36 million systematic transactions with a value of Rs 1164.4 crore in Q1FY2019.
The company has been booking long term SIPs with 77.3% of SIPs are booked for a tenure of over 5 year and 64.6% for tenure of over 10 years.
From the individual monthly average AUM perspective, HDFC AMC enjoys 15.4% market share, making the company the preferred choice of individual investors.
Of the total AUM, 13% came in from the B-30 markets. The company has 134 of 210 branches in B-30 locations end June 2018.
The direct channel contributed 35.8% of the total AUM and 17.3% of equity oriented AUM end June 2018.
The company has a strong digital presence with the share of electronic transaction rising to 61.5% of total transactions in Q1FY2019 from 46.4% in Q1FY2018. HDFC MFOnline and mobile applications accounted for 16.8% of total transactions.
The company has adopted IND-AS accounting standards from Q1FY2019, which led to three major changes such as recognition of mark-to-market (MTM) losses of the investments through P&L, obligations under outstanding & unvested ESOS and deferred tax adjustments.
Under Ind AS, the net profit for Q1FY2018 is restated higher at Rs 164.3 crore from Rs 143.2 crore under IGAAP. The opening reserves have been restated higher at Rs 1517.4 crore as on 01 April 2017 from Rs 1422.9 crore under IGAAP.
If u compare Q1 19 with Q4 18, the NP has come down.
Yes. As the revenue of an AMC is basically the fee charges on AUM and since the AUM has increased from Mar 2018 to June 2018 quarter, the revenue and profit should be higher and it should be compared QoQ.
Are there any additional fees / charges applied to the investors during year end, due to which Q4 has a bump?
I do not have the break up of income of Q4 18as I saw the net income from ipo details.Q4profit was around 217 crs.
Can the premium of HDFC AMC company sustain if such actions are taken by regulators to bring down TER which will impact margins?
On the other hand, reducing charges may invite more investments in MFs and that would indicate steady business for AMCs (like a FMCG company)
Great managements find a way to come over these challenges. There has been so many regulatory changes in Gold / Jewellery segment over last few years but Titan has kept growing.
Pretty much public domain info. SEBI brought out the Investment Adviser regulations in 2013 along with the introduction of the direct plans. First step was to drive towards more transparency in the expense ratio that was being charged, the next series of steps are to question whether those ratios are justifiable. Till 2016 the AUM growth in MF industry was bit very high so AMC’s could run to AMFI and make a representation to delay things citing unfavorable business conditions, that is no longer an option.
RBI has been making noises since 2013 telling banks to create a separate division (SIDD) and register with SEBI to run their wealth management business. This would need to be a subsidiary which maintains an arms length from the other operating activities of the bank. Over the past 2-3 years large customers have more or less pushed banks to move them to the RIA model as opposed to the usual distribution model. The business is some cases is getting booked through a central team (SIDD) which is positioned as pure advisory but they are effectively employees of the bank. Next push is to move this layer outside the bank into a subsidiary.
It is likely to be a gradual series of steps over the next 3-5 years that will effect these changes.
Has anyone conducted of exercise on matching AMFI reported AUM figures and HDFC AMC reported AUM (In IPO prospectous)? The predictability of earnings can be very much forcasted using these data points. I tried to do the same but there are too many gaps which I couldn’t fill.
Nevertheless post your calculations
I have a very basic question (not directly related to HDFC AMC). Can a listed AMC equity schemes buy its own shares or is there any regulatory restrictions? If the MF schemes can buy its own AMC shares, is there any risk of manipulation of share prices?
there is no such regulation, however, every fund has a restriction on buying maximum capacity and also they can’t SELL stocks upto a limit, so that way dont think price rigging is possible
Here is my first attempt to analyze HDFC AUM data. So feedback is welcome! Data is picked up from “Statutory Disclosures” section from HDFCFUND.COM
Here are my observations based on Monthly AUM disclosures:
- There is variance in Monthly AAUM and Quartely AAUM reported by fund. (Check Balanced fund AAUM)
- Growth over Dec-17 till Jul-18 is
- Equity AAUM -1%
- Balanced AUM 6%
- Overall 2.7% (Excluding FOF which is -4.5%)
- There is difference in quarterly AAUM disclosure compared to calculation of average monthly AAUM (Jan to Mar18 , Apr to Jun 18)
- As per investor presentation for Q FY19 (slide 4) Total AUM is 3011 billion where as data total AUM is ~3058 billion (exclude FOF)
- Slide 5 - Actively Managed Equity AUM 1465 billion this is no where close to reported figure in data
Equity Growth AUM - 9212 (Part of this arbitrage) + Balanced Fund 6198 (Part of this may be debt)
So I am not able to conclude from this data. How to reconcile these figures?
HDFC MF AUM Analysis.xlsx (154.1 KB)
HDFC AMCs SIP book of around 1100 crore per month. That means around 13k crore per year. At current AUM of 3Lac crore, this represents around 4% of their AUM. This is significant. What’s this percentage for other AMCs should be interesting.
The real risk in HDFC AMC is a significant reduction in expense ratios. The risk is real and seems eminent. The question is how much reduction and how much will this be offset by a growing AUM. I think its better to invest in companies where AMC is ome part of business and any risk can be cushioned by other businesses.
L&T Financial, Edelweiss are good businesses to look where they are enjoying the growth of AMCs and also somewhat cushioned from risks.
Disc: Not invested.
Rnam claims 10k cr sip book mf aum of 2.41 lakh crore. ABSL mf claims around 12k cr sip book 2.67 lakh cr. Stats are from q1 fy19 presentation.
Equity Asset Under Management At Record High In August 2018
- Total assets under management (AUM) up 9 percent at Rs 25.2 lakh crore versus Rs 23.05 lakh crore (MoM).
- Total equity AUM up 4.2 percent at Rs 8.04 lakh crore versus Rs 7.72 lakh crore (MoM).
Source: AMFI Website
Morgan Stanley has come out with a new overweight recommendation on HDFC AMC with a target price of 2050
“Have a structurally bullish view on Indian mutual funds
HDFC AMC offers all the ingredients to be the best play in the space
Valuations lofty, but strong earnings compounding should drive healthy returns”
Is it a good idea to buy AMCs after a 5 year bull run? How would a crash (not correction) impact the earnings?