@sumi00 if one is looking at this as a long term theme. What is the right move in your view?
Many Im sure are betting the theme and going via HDFC AMC is definately not a bad idea. The opportunity size is simply too big to ignore. It will be hard for HDFC AMC to grow under 15% cagr for the next 5 years. In fact I think they can grow at 20% cagr for a long time while throwing out fat dividends.
My main concern is the valuation. But if one is looking very long term, 5 years at the least. At 30x it seems like a growth at reasonable price kind of a thing right?
I have suggested few friends and family members to start equity SIP in HDFC AMC and HDFC Life. I will accumulate slowly over the full Cy19 if at all I decide to take a plunge. Buying @30 PE seems ok only due to high earning cycle of the last few years. I donât think it will be right to anchor ourselves with a 5-10y CAGR view. We start tolerating nonperformance when we have a long term anchor. I consider it as a saving franchise for the masses with optional value. Letâs think if 2-3 yrs down the line they start a PMS or a wealth management products etc. So the growth could be even higher than 20% if things work out. At worse it could be in line with market return i.e. 12-14% over the longer term with great dividend payout. Also, returns wonât be consistent so PE can even go lower and could remain there for long in a bad market cycle.
If I make the following back of the envelope calculations
EPS 35 March18
15% cagr for next 5 years
6% terminal growth rate post the 5 years of 15% cagr
10% Discount rate
We get an value of 1330 per share
Take a 20% MOS you get 1050 per share.
I think the above estimates are very consverative looking at the opportunity size available to these companies. Would like the views of senior members. Could this investment from this juncture out perform the index for 5 years?
What if due to any regulatory changes, the fees they can charge goes to half?
This may be a possibility in the future due to disruption in fintech space that might offer similar portfolio creation at much lower cost by tie-up with brokerage houses (very basic analogy is https://www.smallcase.com/ and this is just the beginning I believe). Plus the industry is cyclical so people may reduce the exposure to MF and switch to some other asset class at the time of frenzy.
Block chain is another area which potentially can disrupt this space in a big way.
Interesting to see that longevity of such assumed full-proof businesses are at stake and would require them to evolve very fast for their survival.
If you study profitability of Vanguard, black rock , Fidelity . You will get the answer (Larg AUM will compensate less fees)
As fees are reduced they will reduce commission and will sell more direct low cost product
Infact reduction in fees will increase total AUM flow in long run
Agreed industry is cyclical but surely they will come up with more attractive products than bank FD in downturn of market
Well blockchain also can be used by HDFC AMC as they may have more client data and no financial restraint
For me biggest risk is if India goes to big recession like JAPAN and index remain same practically for decades
(Thatâs what Charlie Munger says Risk for Index fund )
Another important risk I realised over few months. Like giving loans to companies like ILFS or ADAG group or DHFL or Zee group
Thanks
Ashit
Disclosure Invested and re-examine my investment
Somehow if we see history of fidelity, even in times of recessions and depressionsâŚthe damage is not visible in charts which rather look like secular fmcg giants like P&G , Colgate, unilever etc. This was when I last checked an year back or soâŚi am curious how these AMCs which are considered so cyclical and market dependent managed such wonderful charts at times of exodus? Havenât got my answer so farâŚwould be happy to hear from expertsâŚ
I feel pension funds are also great business as at times of exodus, last fund a customer might touch is his pension fund that is if at all he can do that outside the lock inâŚis Hdfc pension fund a part of Hdfc amc?
I think there are two major assumption numbers and key risks associated with those numbers
Revenue growth :
Why itâs should grow in high teens -
Financialization of saving
Still low penetrated market
Next 10 years , one of highest bucket of population will be earning population
Decreasing popularity of gold n real estate at least for time being
Strong distribution and brand name
So, what could hamper this growth -
Emergence of alternate equity management channels - Family office, quantitative algorithms, rise of reputed pms fund managers
Quitting of Star fund managers
Popularity of index funds
Fact is 54% of mutual funds canât even beat index based on a rough analysis done. Going forward , it will be more and more difficult. On the other hand, with internet penetration , the retail junta is becoming more and more aware of informative decision making and market will give more options
How to analyze quantified numbers of all the pros and cons will need some good effort on a continuous basis. But the best we can do is do a guesstimates n take a conservative share on economy growth, savings grwoth, mutual fund share of that , hdfc share of that and see what is the conservative to aggressive AUM possible down the line
Margin Risk : there are two kinds of margin risks:
Due to cyclic behavior of business which to some extent gets covered in the way they manage fund mix but still it remains a risk
Regulatory risk on margins. What if regulatory keeps coming heavily on asset mgmt firms unlike USA. Looks like AMCs will have better bargaining power than distributors but some margin of safety required here .
So, whatever valuation model we build, I think may be we should have a range of values around these two items and create a cash flow distribution and see at what price the odds are in favor .
Disc : took a study position for deeper interest
Cyclical nature of industry is also another issue which impacts margin. The operating leverage should work in adverse manner in the slowdown scenario. The expenses will remain same where as income reduces significantly, which should take few quarters for the company to adjust to it.
Technological disruption - Risk is there but HDFC as a group has adopted well to the tech changes. They have best of technology platform for banking services. I have been using âPayZappâ for last 6 months and has been a good experience so far.
The only hedge/comfort I can see against the risk associated with nature of industry is the promoter brand âHDFCâ. They have been in the industry long enough to understand business/credit cycles and are better positioned to foresee their impacts on capital markets. They canât escape the slowdowns, but are well positioned to prepare.
Disclosure - Initiated small position, plan to build it further in SIP like manner.
while the idea is innovative, i dont think it really disrupts the AMC space.
Infact, it is something that helps brokerages to streamline and organise investments based on rationale and ideas for investors, especially novice and newbies.
AMC target audience is normally that not-so-financially-literrate public who believes in âkitna deti heyâ mindset. This mass doesnt belive in investing in ideas and themes.
when one invests in AMC, he essentially bets on the wisdom of the fund and the fund manager to give him the returns expected.
To bet on wisdom of smallcase research team wouldnt suit the risk appetite of the masses mentioned above.
Mar 2016 - 4.77 Cr
Mar 2017 - 5.54 Cr
Mar 2018 - 7.13 Cr
Dec 2018 - 8.03 Cr
Jan 2019 - 8.09 Cr
Weâve had a respectable bout of volatility in the market but there arenât too many signs of retail investors pulling out money/stopping SIP/folios getting closed. Of course one can make a case that another 6-9 months of indifferent market performance may induce some of these but the current data makes a case that domestic retail inflows into the market might be more than a short term, performance driven seasonal trend
Disclosure - I am a SEBI registered Investment Adviser and hold HDFC AMC in my personal portfolio and other customer portfolios. I have added to my holdings in the past 30 days and am likely to add more in the coming months based on market conditions. This is only an expression of my views and not investment advice. Any investment advice I provide is specific to each customer and in light of the overall portfolio, it is not to be applied out of context or in isolation
One account can have multiple folios in it but still increasing numbers are a positive for AMCâs and as you said in next few quarters if the market doesnât perform, we will get a much clearer picture.
Liquid fund TERs seem to be increasing however it is sticky since big institutions will not move to smaller AUM funds.
Large cap funds not beating index funds - again TER will be lower for index vs. large cap funds.
This industry is slowly becoming a volume play more than a performance play. Here the HDFC name will have an inherent advantage and hence I am looking to add more of this to my retirement portfolio, but the current valuation is too rich for me
Disclaimer: Invested a tracking amount in portfolio.
The stock was listed on Aug 6, 2018. In the Corporate Announcements space, the only dividend currently shown is Rs 12 due for March 6, 2019. Could you please check when this dividend of Rs 16 was declared? Before or after IPO?