Recommendation from a Finance - Investment Sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

UTI ASSET MANAGEMENT COMPANY LTD : DRIVEN BY THE INVESTMENT TREND

HERE IS WHY
✓ Triggered by growing Indian economy
✓ Increase in net revenue
✓ Strong distribution network 

According to Modor Intelligence, the India asset management market is about USD 865 billion in the current year and is expected to register a CAGR of 14 per cent over the period till 2028. The assets under management (AUM) of the Indian mutual fund industry has grown from ₹7.46 lakh crore as of September 30, 2013 to ₹46.58 lakh crore as of September 30, 2023 – more than a six-fold increase in a span of 10 years. The National Pension Scheme (NPS) surpassed an AUM mark of ₹10 lakh crore on August 25, 2023 and has shown a remarkable 25 per cent YoY growth. 

The NPS AUM doubled to ₹10 lakh crore in two years and 10 months. Growing Indian economy, rising per capita income and increasing urbanisation are also acting as tailwinds for the wealth management industry. The increase in disposable income will create wealth management needs in the affluent middle-class segment. Keeping in mind the growth of the wealth management and mutual fund industry, the choice scrip for this issue is UTI Asset Management Company Ltd. 

The company is primarily engaged in the activities of raising funds for and to render investment management services to schemes of UTI Mutual Fund. It was the first to introduce mutual funds in India and is focused solely on investment management and related services. The company offers various products and services that include several mutual funds and is also involved in other ventures like offshore business, alternate investment funds, the National Pension Scheme (NPS) and portfolio management services (PMS). 

In Q1FY24, on a consolidated basis its net revenue rose by 53.15 per cent YoY to ₹468.57 crore compared to ₹305.96 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 51.80 per cent from ₹308.68 crore. The net profit stood at ₹234.41 crore compared to ₹91.50 crore, a YoY increase by 156.19 per cent, while sequentially it increased by 173.52 per cent from ₹85.70 crore. The results were better than the street estimates. The increase in overall and equity AUM growth for FY24 is expected to be 7.7 and 4.5 per cent, respectively. 

Going ahead, the earnings impact of fresh TER guidelines could be minimal. The company saw a good quarter due to core earnings’ beat of 24 per cent. The UTI Group’s total AUM grew by approximately 16.76 per cent YoY and was at ₹16.13 lakh crore as of June 2023. The company holds a major market share in the NPS with a 26.57 per cent share in the total NPS AUM, 5.76 per cent in MF, and 4.47 per cent in equity MF. The company derives 70.3 per cent of its revenue from PMS services, 15.5 per cent from MF and 12.5 per cent from retirement-oriented solutions. 

It has a strong distribution network with 67 per cent coming directly, 26 per cent through MF distributors and 7 per cent through banks. The company is currently trading at a PE of 17.6 times as against the industry PE of 23.3 times and less than its three-year median PE of 20.7 times. In the last three years the company has delivered average ROE of 14.4 per cent and ROCE of 18.5 per cent, respectively. Considering the company’s business and on account of its leading position in the Indian asset management industry, we recommend BUY.

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