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Prabhudas Lilladher Report
UTI Asset Management Company Ltd. saw a weak quarter as operating yields at 13 basis points missed our estimate by 5 bps due to revenue miss of 5% and opex being higher to our estimate by 9%.
Other opex spike of 27% QoQ was due to one-time expenses, which is expected to normalise. Equity yields (75 bps) declined by 7-8 bps YoY in FY23; however, yield contraction in FY24/25E could be lesser than FY23 as lower yielding assets under management now makes up for 80% of equity AuM.
On a blended basis, we are factoring an average 2 bps fall in yields in FY24/25 (5 bps in FY23).
We cut core earnings by 11% in FY24/25E as we trim revenue by ~4.0%. Valuation is undemanding at 11 times on FY25E core earnings per share and we maintaining multiple at 14 times on FY25E core EPS.
We see two key levers for stock to re-rate beyond 14 times-
distribution of excess cash to investors and
TATA AMC buying a majority stake in UTI AMC.
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