Global brokerage Jefferies has reiterated its Buy rating on HDFC Asset Management Company after the company delivered a modest earnings beat in the December quarter, even as regulatory and mix-related pressures continue to shape the medium-term outlook. It has revised the price target to Rs 3,120, based on a valuation multiple of 35 times March 2028 earnings.
For the quarter, HDFC AMC reported a profit of Rs 770 crore, up 20% year-on-year and marginally ahead of Jefferies' estimates. The beat was driven by stronger other income and lower operating expenses, which more than offset a slight moderation in revenue growth.
AUM Growth Stays Robust
Assets under management (AUM) rose 19% year-on-year during the quarter, supported by healthy equity inflows. Equity AUM grew 20% and now accounts for 67% of total AUM, reinforcing HDFC AMC's positioning as a predominantly equity-focused fund house.
Jefferies noted that market share in both equity and debt segments remained stable. However, it flagged a slight slowdown in flows into lower-margin liquid funds, which could weigh on near-term revenue mix. That said, the brokerage believes continued traction in PMS and AIF products should support profitability.
Costs and Margins Under Watch
While AUM growth remained strong, margins faced pressure. Operating margins declined to 46 basis points, reflecting higher employee costs and investments in business expansion. Jefferies pointed out that expenses grew faster than revenue during the quarter, partly due to non-cash charges and higher ESOP costs.
Other income rose sharply, providing a cushion to earnings. Excluding this, core profitability growth would have been more muted, the brokerage noted.
TER and Regulatory Changes Loom
Jefferies expects regulatory changes to create manageable, but visible, headwinds. The new total expense ratio (TER) caps and changes related to TER exits could have a marginal negative impact on profitability, particularly for larger schemes. However, HDFC AMC's scale and ability to pass on costs should help limit the downside.
The brokerage also downplayed concerns around portfolio manager exits, noting that the company has handled leadership transitions well in the past and benefits from a deep bench of investment professionals.
Factoring in lower other income and the impact of TER caps, Jefferies trimmed its FY27–FY28 earnings estimates by about 4%. Over FY26–FY28, the brokerage expects AUM to grow at a 22% CAGR, while profit growth may moderate to around 13% as margins normalise.
Watch LIVE TV, Get Stock Market Updates, Top Business, IPO and Latest News on NDTV Profit.
